UK inflation sticks at 3%, as cost of living squeeze continues – business live

All the day’s economic and financial news, as Britain’s UK consumer prices index remains close to a six-year highLatest: Inflation higher than expected in JanuaryPwC: Real wages squeeze will continueFears for borrowers if rates riseThe key inflation chartsTUC: Real wages are still fallingEarlier:Introduction: Calm returns to the markets 1.51pm GMT One of the concerns driving the recent turmoil in the markets was a rise in inflation and the subsequent belief that central banks might start raising interests rates more quickly than expected.But Capital Economics believes that inflation may not rise very far. Chief global economist Andrew Kenningham said:For a start, underlying inflation has remained low and stable recently. Core inflation in the OECD was 1.9% in December. Moreover, it has been between 1.5% and 2.0% for the past six years, and 1.1% and 2.5% since 2003. The stability of underlying inflation for most of this century suggests that only a huge economic shock, or major structural change, would dislodge it far from the typical 2% target.Of course, the average inflation rate can mask big variations between countries. But even in economies which are closest to full employment, inflation has remained low. In Japan, where the unemployment rate is at its lowest level since 1993, inflation excluding fresh food and energy is only 0.3%. And in Germany, the unemployment rate is at its lowest since 1980 but core inflation is just 1.5%. The big picture is that global inflation is edging up, not taking off. The upshot is that while interest rates are likely to rise gradually over the next year or two, there is no need to panic. We expect government bond yields to rise, but remain very low by historical standards, with ten-year US Treasury yields, for example, unlikely to get much higher than 3% by the end of this year. 1.20pm GMT If you’re just tuning in, here’s our news story on today’s inflation figures: Related: UK inflation remains at 3% as living standards squeeze continues Continue reading…
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