Britain's inflation level hits a 2.5-year high, says ONS

Inflation in Britain reached 1.6 percent in December 2016, up from 1.2 percent in November and marking a two-and-a-half-year high, the Office for National Statistics (ONS) said Tuesday.

The Bank of England is expecting inflation to rise to nearly 3.0 percent in 2018 against a background of slowing economic growth.

Commenting on the inflation figures, ONS head of inflation, Mike Prestwood, said: "This is the highest CPI has been for over two years, though the annual rate remains below the Bank of England's target and low by historical standards."

"Rising airfares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation. Rising raw material costs also continued to push up the prices of goods leaving factories," he said.

The December rate was the highest since July 2014, when it was also 1.6 percent. At that time, the rate began to fall, subsequently remaining at or around zero for much of 2015 before gradually picking up from the end of the year and throughout 2016.

ONS said the largest downward pull on inflation in December 2016, and for 2016 to date, came from prices for food and non-alcoholic beverages, although this had lessened in recent months.

"November 2016 was the first time since mid-2014 that all non-food categories had an upward effect on inflation and this has continued in December 2016. Transport prices created a downward pressure during 2015 and early 2016, but have since become the largest upward pressure," said ONS.

Member of Parliament (MP) Rebecca Long-Bailey, the Labour Party's shadow chief secretary to the Treasury, said: "Today's inflation figures mean people will be facing a squeeze on their pay, on top of the six wasted years of flat and falling living standards under the Conservatives."

James Sproule, chief economist at the Institute of Directors, said: "Inflation is rising quickly as the price of oil goes up and the fall in the value of sterling feeds through to higher import costs. The current rate of increase suggests it will be only a matter of months before we break through the Bank of England's two percent target."

"Above target inflation, raises the question of interest rate rises. Having only recently cut interest rates, the Bank is now left in the uncomfortable position of having to reverse course...Monetary policy should be set for the long-term, and that means policy makers need to look through the haze of Brexit speculation as well as consider the effect of rates in asset prices," said Sproule.

"Higher inflation also means pressure on companies to raise prices, so it's very important that the government holds off from introducing any tax or regulatory changes that further increase their costs," said Sproule. Endit