Concerns over high UK inflation, as the reading for March matches February's level of 2.3%, may be exaggerated according asset manager WisdomTree's research director Viktor Nossek.

Inflation has been stealthily creeping up over the last year, with higher prices for food, alcohol, tobacco and clothing contributing to the rise, according to the Office for National Statistics.

WHY HAS INFLATION INCREASED?

Nossek says higher inflation is enduring as energy prices and sterling have failed to move significantly through March but there are reasons to believe that could change.

Nossek asserts that Brexit negotiations are already priced into a ‘devalued’ sterling and would need a ‘catastrophic breakdown’ in trade talks for it to fall further.

Rising oil prices are another factor, but production cuts agreed by the Organisation of Petroleum Exporting Countries (OPEC) in December 2016 are so far failing to materially shift prices.

HOUSEHOLD CONSUMPTION UNDER PRESSURE

A rise in household consumption is the final risk if it is boosted by better than expected employment numbers and wage growth. Though this appears an unlikely scenario. UK household spending was weak in March according to the British Retail Consortium with non-food sales falling by 1.1%, marking the first decline since 2011.

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Issue Date: 11 Apr 2017