LONDON (Reuters) - The inflation rate crept up last month, as expected, but still remained well below the Bank of England's 2.0 percent target, official figures show.
The Office for National Statistics said on Tuesday consumer prices fell by 0.5 percent in January which took the annual rate up a tenth of a point to 1.4 percent.
The main upward effects came from bank overdraft charges and lower seasonal reductions on clothing and footwear than a year earlier.
Consumer price inflation has now been below the Bank's new target since May 1998. But the central bank expects it to rise sharply this year to be on target at the end of its two-year time horizon, justifying its interest rate hike earlier this month.
But analysts suspect the second quarter point hike in three months came as the Bank is more concerned about reining in hefty consumer debt levels and rampant house price inflation, which is not included in the CPI.
Futures markets are predicting the overnight bank lending rate will rise another 0.75 percentage point from its current level of 4.0 percent by year-end.
RPIX NEAR OLD TARGET
The ONS said RPIX -- the old targeted measure -- posted an annual rate of 2.4 percent, just below the Bank's old mandate of 2.5 percent, and market expectations.
Chancellor Gordon Brown swapped the Bank's inflation mandate to a 2.0 percent CPI target from a 2.5 percent on the RPIX measure in December.
The biggest downward effect on RPIX came from airfares, which were included in the index for the first time in 2003.
On the CPI, the biggest downward influence came from cultural services thanks to subscription fees for satellite and digital television and lower rental charges for television and video.
Although the ONS noted that new clothing stock was coming in at higher prices, overall goods prices were still unchanged on year in January. Services inflation rose sharply to 3.1 percent last month compared with 2.8 percent in December.
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