The annual rate of consumer price inflation (CPI) rose to 0.3% in January, compared with 0.2% in the year to December reports the Guardian.
The 0.3% level is the same as January 2015, since when the figure has been below that.
Inflation has now been below the government’s 2% target level for two years – and analysts believe it will remain below 1% for all of 2016.
A rate increase is not thought to be imminent, especially as the Bank of England governor, Mark Carney, is focusing on core inflation – which strips out the impact of changing petrol and food prices. On this measure, inflation fell to 1.2% from 1.4% in December.
“Governor Carney has said recently that he would need to see a pickup in core inflation before raising interest rates,” said Scott Bowman, UK economist at Capital Economics.
“Accordingly, the first rate hike looks to still be some way in the distance. Inflation will be going nowhere fast – it is set to average less than 1% this year.”
The Office for National Statistics (ONS) said the the main reason for the slight rise in inflation was fuel prices falling by less in January than they did at the same point in the previous year. Petrol prices fell by 2.6% in January compared with a 6.8% fall a year earlier.
Clothing, food and alcoholic drinks – up 5.2% in the month – also helped to push up inflation. The impact of those increases was offset by falling air fares.
Food prices continued to drop last month, but still pushed inflation higher because the fall of 0.6% was less than the 1% a year ago.
“The deepest deflation in the food cabinet came from fish, down 6.8% year-on-year, followed by milk, cheese and eggs and vegetables,” said analysts at Shore Capital.
Jeremy Cook, chief economist at payments company World First, said: “It is strange to think that an inflation rate of 0.3% year-on-year is the highest reading we have seen for a year but that is the reality of the global inflation picture.”
Interest rates will have been at their 0.5% historic low for seven years next month, and the subdued pace of inflation is being closely watched by Carney and other members of the rate-setting monetary policy committee (MPC).
Earlier this month, Carney said interest rates would “more likely than not” go up over the next two years. The one member of the MPC who had been voting for a rise, Ian McCafferty, changed his mind last month.
Global markets have been in turmoil as investors digest the implications of interest rates remaining lower for longer than expected, particularly for the banking sector. In Japan, interest rates turned negative on Tuesday as the Bank of Japan attempted to bolster growth and pull the country out of deflation.
Investec’s Chris Hare said: “Our central view is that the MPC will not begin raising rates until November this year, but if wobbly market sentiment ends up taking a bite out of the real economy, there is a risk the MPC will wait even longer than that”.
“It would take a really major downshift to the inflation outlook for the MPC to even consider joining the expanding club of central banks opting to set negative interest rates,” he said.
Oil prices are keeping inflation low, which James Sproule, chief economist at the Institute of Directors, said was good news for Britain.
“Whatever turmoil may be stalking the global economy, we should be under no illusions: cheap oil and low inflation are good news for Britain,” he said.
“As the cost of moving goods and people around the world drops, UK households have a bit more to spend or save, and firms can boost their bottom lines, cut prices for their customers or increase their investments.
“Britain is in the sweet spot where prices are barely going up, and consumers are happy to keep on spending.”
The news is not so good for savers, however, as rates are coming down. Moneyfacts said it had recorded just 21 savings rate rises, compared with 138 rate cuts for savers in January.
