"The MPC’s next meeting looks set to be a rubber stamping for a rate hike. The question now is whether they go for a 25 basis point hike or a 50 basis point hike."
CPI inflation rose by 5.5% in the 12 months to January 2022, up from 5.4% in December 2021.
CPIH inflation, which includes owner occupiers’ housing costs, rose by 4.9% in the 12 months to January, up from 4.8% in December.
The largest upwards contributions to the change came from clothing and footwear, housing and household services, and furniture and household goods.
Hinesh Patel, portfolio manager at Quilter Investors, commented: “Once again, the UK is posting inflation numbers not seen since the early 1990s, with prints topping 5.5% in the 12 months to January 2022. The biggest contribution to inflation comes from the increased price of energy, fuel and food, among a number of other items.
“While we face inflationary pressures not seen for decades, worse is yet to come. The Bank of England expects CPI inflation to peak around 7.25% in April, though the Bank has so-far underestimated the extent of inflation in previous forecasts.
“In the absence of any extraordinary development’s, the MPC’s next meeting looks set to be a rubber stamping for a rate hike. The question now is whether they go for a 25 basis point hike or a 50 basis point hike. A 50 basis point hike may well be on the cards, but it would be a sharp correction for the Bank which may ultimately not allow them to hike more in future, especially once we see households and businesses under even more strain this year."
Derrick Dunne, CEO of YOU Asset Management, said: “UK inflation came in higher than expected this morning with a 12-month reading on the CPI index of 5.5% in January – up from 5.4% in December and against predictions that it would hold that level for another month.
“This is in fact the fourth consecutive month that inflation has exceeded forecasts, and by all accounts it won’t stop here. Economists still expect the reading to peak above 7% in the coming months, and so today’s surprise increase only underlines the challenge facing monetary policymakers.
“The Bank of England has already begun what will likely become an unprecedented series of interest rate hikes, but with inflation still outstripping wage growth and a cost-of-living crisis raging, even more aggressive action may be needed to cool red-hot price growth."
Dan Boardman-Weston, CIO at BRI Wealth Management, added: "One of the largest contributors continues to be the price of fuel and this hasn’t been helped by the ongoing escalation between Russia and Ukraine. Whilst some of this contribution came from a continued rise in prices, the base effect continues to play a large role, as prices were depressed last January due to various lockdowns across the UK.
"The data continues to point towards another few months of rises in the rate of the inflation but we expect this to ease by April or May. Given the strength of the labour market and the overall economy, it seems inevitable that the Bank of England will continue down the path of further rate rises. It is important that the Bank is cautious with raising interest rates as a lot of this inflation still seems transitory in nature. Raising rates at a time of high household bills and rising taxes could stifle the nascent economic recovery by putting the consumer under too much pressure.”
