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Last Updated:  Tuesday, 18 February, 2003, 21:29 GMT
UK inflation steady at 2.7%
The UK's underlying rate of inflation remains unchanged at 2.7%, official figures have revealed.

The figure, for January, means inflation has stayed above the government's 2.5% target for the third month in a row.

The headline rate, including mortgage interest payments, also remained unchanged at 2.9%, figures from the Office for National Statistics showed.

Some economists had expected underlying inflation to ease slightly to 2.6%.

But the figures are unlikely to set alarm bells ringing at the Bank of England, which has said it expects the underlying rate to reach 3% before starting to fall again.

'Disappointing'

Inflation is coming in more strongly than the market and the Bank of England have expected
Ross Walker, RBS financial markets
Commenting on the figures, Ross Walker, of RBS financial markets, said: "This is a bit disappointing because a year ago the discounts were not particularly generous, and therefore the base effects should have been more helpful this year.

"We should have seen a bigger fall. It shows the inflation is coming in more strongly than the market and the Bank of England have expected.

"But I don't think the BoE will react to it at this point. They will play this down.

"They will say that these are essentially short-term effects that are likely to unwind."

Petrol prices

Clothing and footwear prices provided the main upward pressure on inflation in January, the ONS said.

This was because many retailers began cutting prices before Christmas, so prices did not fall as much as normal in the January sales.

Soaring petrol prices - up 7.2% on the same period last year - also had an effect.

Downward pressure came from seasonal food prices, which were down 7.7% on last January.

Interest rates

The Bank of England is charged with keeping inflation at 2.5%, plus or minus one percentage point.

The central bank predicted the underlying inflation rate would climb to 3% before starting to fall towards the end of its two-year cycle.

David Page, an economist at Investec bank, predicted Monday's inflation figures would have "very little impact" on interest rates.

The factors driving inflation - such as clothing and petrol prices - were "temporary", he added.





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The BBC's Russel Hayes
"This is a bit of a surprise"



SEE ALSO:
Surprise cut in UK interest rates
18 Feb 03 |  Business
Q&A: Surprise interest rate cut
18 Feb 03 |  Business


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