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Higher inflation unlikely to have immediate impact on UK property prices

UK inflation has reached its highest rate since June 2014, mainly due to the increasing cost of fuel and food.

Annual inflation as measured by the Consumer Prices Index (CPI) hit 1.8% last month, up from a 1.6% in December, according to the latest figures from the Office for National Statistics (ONS).

It is the fourth month in a row that the rate has increased and takes inflation to its highest level for two-and-a-half years.

The increase in the inflation rate takes it closer to the Bank of England's target rate of 2%, which has not been reached for more than three years.

Fuelled largely by a weaker pound, inflation is widely tipped to increase further this year, and is expected to hit as high as 2.7% next year, according to the Bank of England.

But it is unlikely that the latest inflation numbers will have a significant impact on either the commercial or residential property markets, “at least not in the short term”, according to Agate Freimane, senior investment director at BrickVest.

Freimane said: “Typically inflation means higher construction costs, which would eventually lead to increase in real estate prices, however, since the Brexit vote, the demand for real estate, both commercial and residential, has softened, so it is unlikely that developers will immediately pass on the raising costs as a consequence of the inflation to the end customer.

“In the construction sector, the inflation has been driven by weak British pound affecting the price of imported materials.”

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