It looks as if everything is starting to fall apart all at once. Not only has the cost of oil increased, production costs have risen by 20% in a year because of the pounds decline and the cost of importing has also gone up.
As predicted, inflation has started to rise and hit 1.8% in January as a result of increased fuel prices and the drop in the pounds value.
In December 2016, inflation was at 1.6% and the Office of National Statistics described it as the highest it’s been since June 2014.
Economists predicted that it would be 1.9% in January, and at 1.8% it is lower than expected. Therefore, the Bank of England won’t be raising interest rates to stabilise prices. At the same time, the pound is also continuing to fall.
Inflation will continue to rise, and according to economists it will surpass the Bank of England’s forecast within the next few months. The increase in inflation will further devalue the pound and make imports to the UK even more expensive.
Economist Oliver White states: “By February expect to see inflation higher than 2%, and it will continue to rise peaking at 3% in by autumn of this year.
The latest figures reveal that material and manufacturers fuel costs are rising at a pace faster than prices over the past 8 years.
The ONS have stated that the current inflation rate is due to higher fuel prices which increased by 3.4% within one month. The ONS have also announced that excluding volatile items such as fuel and food, core inflation has stabilised at 1.6%.
Economists are warning that the increase in inflation is going to put a strain on household incomes if wages don’t rise at the same rate as inflation.