Inflation in the UK has reached its highest level since March 1992 as the cost of living continues to rise.
The rate of inflation hit 5.5 per cent in the 12 months to January, according to the Office for National Statistics.
Increasing prices for clothing and footwear pushed the rate up, an area of the economy that normally sees price falls in January due to sales.
The rate rise means the Bank of England has missed its 2 per cent monthly inflation target each month since May last year.
The inflation rate, which was 5.4 per cent in December, will heap more pressure on the central bank to raise interest rates in its March meeting in order to curb the price rises.
Ambrose Crofton, global market strategist at J.P. Morgan Asset Management said there has been plenty for Bank of England hawks to feed on in recent economic data, including a tight labour market, high inflation and concerns that energy prices will soar when the cap is lifted in April.
“The Bank of England faces a difficult balancing act,” he said.
The BoE needs to assert its credibility and commitment to bringing down inflation, he said, adding that at the same time it does not want to hamper the nascent recovery given all the work done to support the economy in the past two years.
Crofton said: “For now we think that means tightening 25 basis points at each meeting in the coming months though some members may feel inclined towards a faster pace as we saw at the February meeting.”
The monetary policy committee voted 5-4 to raise the rate, with the four members voting against the raise asking for a higher hike, to 0.75 per cent.
Sarah Giarrusso, investment strategist at Tilney Smith & Williamson, said there is cause that the central bank may well take a cautious approach and not raise rates at its next meeting in March.
“Given growth headwinds from rising energy costs and an increase in national insurance from April, the BoE could prefer to wait and raise interest rates at its May [meeting] and several more times in the second half of 2022 so as not to impede the economic recovery.”
Laith Khalaf, head of investment analysis at AJ Bell, said despite inflation dominating the market narrative over the last six months, it is not hugely apparent in market pricing.
“There has been a sell-off in the bond market, but at a yield of 1.6 per cent, the benchmark 10-year gilt isn’t squealing that inflation is a sustained problem.”
Likewise, he added, there has been a rotation away from some of the higher valued areas of the market, but hardly the “bloodbath” one might have anticipated if inflationary concerns had really bedded in for the long term.