British inflation rose more strongly than expected in December to hit its highest level since mid-2014, propelled by the Brexit-fuelled fall in the value of sterling which looks set to hit consumers' spending power harder in the coming months. Sonia Legg reports
Shopping is a national past-time in Britain but it's not getting any cheaper. A fall in the value of the pound has had a big impact on inflation. In December consumer prices were 1.6 percent higher than a year earlier. That's above expectations and the highest level in almost three years. (SOUNDBITE) (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: "We have had food price inflation, we've had energy price inflation. Whether it is an issue or not really depends on whether inflation now gathers pace and begins to be translated into higher wage inflation, reduced competitiveness and therefore reduced profitability." Rising food prices and air fares, combined with a smaller fall in petrol prices from a year earlier, were behind the increase, according to the Office of National Statistics. The Bank of England is watching closely Consumer spending helped Britain withstand the shock of the Brexit vote - any fall in spending may make it vulnerable. (SOUNDBITE) (English) MARK CARNEY, BANK OF ENGLAND GOVERNOR, SAYING: "We have a situation where households are almost entirely looking through Brexit-related uncertainties, savings rates are beginning to come down and consumer borrowing has accelerated notably. In the year to November total household borrowing rose by 4 percent and consumer credit rose by 10 per cent the fastest rate for the latter since 2005." The BoE says it's neutral about which way interest rates might move. But it acknowledges inflation may exceed its November forecast of a 2.7 percent increase. Many private-sector economists are predicting it will hit 3 percent, possibly as early as this summer.