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Retailers may pass on rising costs

Inflation up to 1.6% as Carney warns on prices

UK inflation rose from 1.2% to 1.6% in December, a bigger rise than expected.

Higher food prices and air fares pushed up the Consumer Prices Index (CPI), according to the Office for National Statistics.

CPI had been forecast to hit 1.5%. Colin McLean of SVM Asset Management, said “it is picking up rapidly” and expects it to go above the Bank of England’s 2% target.

Tom Stevenson, investment director for personal investing at Fidelity International, said: “Inflation is back with a vengeance. The weakening pound continues to drive prices higher and today’s CPI reading of 1.6% on the back of rising fuel, food and air fares is significantly higher than expected.

“With more hints from the UK Government that a hard Brexit is on the cards, we could see sterling fall even further in the lead up to the Prime Minister pulling the trigger on Article 50.

“This will translate into further inflation in the short term. Indeed, some of Britain’s biggest retailers have already warned that they may have to raise prices as they are forced to pass on higher costs of importing goods from abroad to customers.”

The latest data follows a warning by Bank of England governor Mark Carney (pictured) that consumer spending could be hit by rising prices from the weaker pound.

He also sounded a cautionary note on the growth in household debt.

Mr Carney said that in the year to November, total household borrowing had risen 4%, while consumer credit had gone up by more than 10%, ” the fastest rate since 2005″.

The FTSE ended a 14-day winning streak, but was the only major European index not to close deep in negative territory.

It has surged 25% since the EU referendum in June partly because the pound’s slump helps internationally-spread firms that earn in dollars and euros.

It closed last night 0.15%, or 10.68 points, lower at 7,327.13.

 



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