The UK’s Office of National Statistics is set to release January inflation data today. Today’s data will likely remain tepid,
The UK’s Office of National Statistics is set to release January inflation data today.
Today’s data will likely remain tepid, as a surge in COVID-19 cases over the holiday season extended lockdown orders into the new year. Because of these measures, gross domestic product contracted by 7.8% for the fourth quarter, on a year-on-year basis, and by 9.9% for the year 2020, the largest contraction on record. As such, expect the inflation rate in January to reflect the previous month’s, likely around 0.7%.
Upward pressure on inflation may materialise in the short-term, as certain tax incentives expire and the number of inoculated citizens reaches a critical mass. A temporary VAT tax reduction on the hospitality sector from 20% to 5% is set to expire on March 31. Without another extension, consumers will experience rising prices in restaurants, pubs and hotels. These price increases will be compounded by a surge in consumer demand as lockdown measures are eased, driving prices even higher. The government will release its plan to end the lockdown on February 22, with calls for that process to be expedited now that 15 million citizens have received at least one shot of a COVID-19 vaccine.
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