World Economy

UK Inflation at One-Year High

UK Inflation at One-Year High
UK Inflation at One-Year High

UK inflation edged up to a 12-month high in January, as a fall in petrol prices eased.

Inflation, as measured by the Consumer Prices Index, rose by 0.3%. It was helped by smaller falls in food and fuel prices than a year ago, BBC reported.

Annual inflation has been below the Bank of England’s 2% target for two years, and last year it was zero. The BoE said earlier this month that it expected inflation to stay below 1% this year.

North Sea oil prices dropped to a 12-year low of $27.10 last month and have almost halved over the past 12 months. But the Office for National Statistics measure of fuels and lubricants costs was only 7.3% lower than in January 2015, the smallest drop since November 2014.

Continuing low inflation makes the chance of an interest rate rise in the near future unlikely.

Few economists expect the BoE to raise rates before late this year at the earliest, and some analysts see a risk that the BoE could instead have cut to rates below the record low of 0.5% where they have been for almost seven years.

Financial markets do not currently expect interest rates to rise until the end of the decade due to concerns including a global economic slowdown and continuing low oil prices.

Food prices fell by 0.6% between December and January as opposed to a 1% fall a year earlier.

Supermarkets have been engaged in a long-running price war, and discounters such as Aldi and Lidl continue to take market share from the “big four” supermarkets–Tesco, Asda, Sainsbury’s and Morrisions.

  Real Estate

Share prices of the UK’s biggest real estate investment trusts have fallen by as much as 20% in the past three months, sparking concerns of a broader weakening of property markets, FT reported.

The slide, which has left several trusts—including the two biggest, Land Securities and British Land—trading at their biggest discounts to net asset value since 2011, reflects fears that a wave of capital that has flowed into real estate in recent years may retreat.

Property buyers, particularly sovereign wealth funds, are being stretched by low oil prices and weakness in emerging market economies, according to analysts.

“It now costs the equivalent of 90 barrels of oil to purchase one square foot of prime West End office space, compared with 20 barrels a year ago, which has blunted sovereign wealth fund purchasing power,” said Mike Prew at investment bank Jefferies.

Resource-driven sovereign wealth funds have been prominent buyers of commercial property assets since the financial crisis.