United Kingdom inflation hits highest level since June 2014 as fuel costs soar

Tuesday's data also showed the consumer price index (CPI) grew 2.5 percent year on year last month, fractionally above market expectations of 2.4 percent.

As per the data, food inflation basket witnessed contraction for the second month in a row with inflation at (-) 0.56 per cent in January as against (-) 0.70 per cent in December.

Annual inflation as measured by the Consumer Prices Index (CPI) hit 1.8% last month, up from a 1.6% in December, according to the latest figures from the Office for National Statistics (ONS) said.

Janet Yellen, chair of the Federal Reserve, ascribes the rise in inflation mainly to the gradual recovery in energy prices as well as stabilising import costs.

The economic data and Yellen's comments heightened expectations of a March interest rate hike, with USA short-term interest rates futures implying a 31-percent chance of a 25 basis point rise at its March meeting versus 18 percent in the prior session.

The major factor was the cost of crude oil, which was more than 88 per cent higher than a year earlier - the biggest increase since June 2000 - overwhelmingly driven by a global rebound in oil prices.

Wen Bin, an analyst at China Minsheng Banking Corporation, also warned of possible inflationary pressure from the strong PPI growth, predicting a tightening in the central bank's monetary policy.

The Bank expects inflation to rise "markedly" above the 2% target over the coming months as a result of the weakness in the pound. Health care costs rose 0.2%.

However, the rising costs in food and fuel were partially offset by prices for clothing and footwear, which fell by more than they did a year ago. Legal services have increased 6.6 percent in price over the previous year, while the price of financial services rose 4.4 percent.

The Bank of England has forecast inflation to rise to 2% in the first quarter of 2017, before reaching 2.7% in the same period next year. This compares to a 1.7 percent year-over-year increase in November.

Given no reported movement in the rate of price growth, the underlying forces determining economy-wide inflation don't appear to have changed recently. Wholesale prices for gasoline jumped 12.9 percent over the past month and 32.3 percent over the past year.

Inflation of 1.8pc is not quite as fast as the 2pc economists had anticipated, however, indicating that retailers may be absorbing some of the costs rather than passing them on to customers.

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