Inflation soars on food and private school fees

UK inflation jumped sharply last month, driven by rising food prices and an increase in private school fees.

The higher-than-expected jump to 3% in the year to January, from 2.5% in December, means prices rose at the fastest pace for 10 months.

Food staples such as meat, bread, eggs and cereals were all more expensive than a year ago, while private school fees grew by about 13% due to VAT being added from 1 January after the government removed the tax exemption.

Airfares, which failed to fall as much as they usually do at the beginning of the year, also fuelled inflation which is forecast to rise further in the coming months, with energy prices set to push up the cost of living for households.

Rising food prices last month mean, on average, the cost of buying groceries is 3.3% more expensive than it was a year ago.

Many businesses have also warned that tax rises coming into effect in April will result in prices for customers going up again to cover the increased costs.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said the threat of higher wage bills for supermarkets and food producers meant there was a “every chance” the January spike in food inflation would not be the last.

There are also future costs for households on the horizon, with domestic energy prices forecast to rise by 5% from April, adding £85 a year to to a typical household bill.

“This is on top of rises in everything from water bills and council tax – which is why it has become known as Awful April,” said Ms Coles.

Inflation is a measure used in the UK to give a general picture of the cost of living and is calculated by comparing prices of goods and services from a year earlier.

The VAT charge on private schools came into effect this January, so the impact on inflation was a “one-off”, according to Grant Fitzner, chief economist at the Office for National Statistics.

The overall inflation figure in January was also impacted by discounts being “much smaller” than normal at the beginning of the year, especially for airfares, he added.

“We normally see quite a large fall in January in prices, there is a lot of price discounting,” he told the BBC’s Today programme.

Airfares typically go up as demand for travel spikes around Christmas and New Year, but the fall back this year has been more muted, he explained.

While the sharpness of the rise in inflation came as a surprise – economists had expected a reading of 2.8% – it is much lower than its peak of 11.1% in October 2022.

That led to higher interest rates, which has made the cost of loans, credit cards and mortgages, more expensive.

As inflation has eased, the Bank of England has cut interest rates, including a quarter point reduction to 4.5% this month.

Data on Tuesday estimated average wages in the UK also continue to outpace inflation, with pay packets, after taking into account the pace of price rises, rising by 3.4% between October and December.

But with inflation remaining above the Bank’s 2% target, January’s figure will be “uncomfortable” for policymakers, according to Ruth Gregory, deputy chief UK economist at Capital Economics.

She said the leap was “no surprise, but it was larger than everyone expected”, adding that she doubted it would prevent further interest cuts this year.

“The risk is that the rise in inflation proves more persistent and rates are cut more slowly than we expect, or not as far,” Ms Gregory added.

In response to the latest figures, Chancellor Rachel Reeves reiterated that her “number one mission” was to get “more pounds in pockets”.

But James Murray, exchequer secretary to the Treasury warned getting inflation back down to the 2% target would be “bumpy”.

“The Bank of England has been clear that they expected inflation to be slightly higher in the first half of this year….but we’re confident in our plan for change to make sure that we’re kick-starting economic growth by making the reforms that are necessary to boost economic growth right across the country,” he added.

Both the Conservatives and Liberal Democrats blamed Reeves’s Budget decisions for the rise in inflation.