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UK inflation rises to 0.7% in January despite clothes prices falling


UK inflation rose to 0.7% in January but the prices of clothes fell.

The rate bounced higher from the 0.6% level of Consumer Prices Index (CPI) inflation recorded in December.

The inflation rate was higher than analyst expectations, with a Reuters poll having predicted inflation to remain at 0.6% for the month.

Higher food prices and more expensive household goods were the main reasons behind the rise, according to the Office for National Statistics (ONS).

Clothes and shoe prices typically fall each year between June and July in summer sales as retailers prepare for autumn ranges to come in, and then rise before sales towards the end of the year, the ONS said.

However, throughout 2020 this pattern was different, with increased sales in March and April due to lockdown.

Why does inflation matter?

INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.

Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.

The government sets an inflation target of 2%.

If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.

High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.

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Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.

But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.

See our UK inflation guide and our Is low inflation good? guide for more information.

Clothes prices then continued to fall in November, and dropped by 4.6% between December and January due to increased discounts.

The inflation rate comes as figures last week showed Britain avoided a double-dip recession.

However, gross domestic product (GDP) still shrunk at its fastest rate in 300 years in 2020.

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “Inflation rose slightly in January, with food prices increasing.

“Household goods also pushed up prices with less discounting this year on items such as bedding and settees.

“However, there were widespread January sales, with particular price cuts for clothing and footwear.”

While Laith Khalaf, financial analyst at AJ Bell, added: “Inflation has started 2021 in much the same vein as it finished 2020, low and moving sideways.

“In the short term it’s pretty nailed on that inflation will rise quickly towards the Bank of England’s 2% target in the coming months.

“That all coincides with the anticipated lifting of the current lockdown, when price collection will start to more accurately reflect normal activity.”

We’ve explained how negative interest rates could affect your finances.

Before the latest lockdown restrictions were introduced, the economy was expected to grow in the first quarter of 2021.

But rising cases of coronavirus and a new mutant strain forced the government to act to save the NHS.

Rail fares to increase by 1.6% in 2021 as inflation rises following lockdown ease





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