According to the data released by the Office for National Statistics (ONS), inflation in the UK increased at a yearly rate of 4% in January, lower than the market expectations of a 4.2% increase. The drop in inflation follows the country’s recent price decline for furniture, household goods, food, and non-alcoholic beverages.
The ONS stated, ‘The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from housing and household services (principally higher gas and electricity charges), while the largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages.‘
On the other hand, the headline consumer price index (CPI) fell to -0.6%, month-on-month. Analysts anticipated the headline CPI to come in at -0.3%.
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Meanwhile, core inflation in the UK (excluding volatile food, energy, alcohol, and tobacco) came in at an annual rate of 5.1%. The figure is lower than analysts’ anticipation of 5.2%.
According to Marion Amiot, senior European economist at S&P Global Ratings, ‘The latest inflation print is another reflection of what is happening in the labor market: a tight labor supply is sustaining high wage growth and thus underlying inflationary pressures, especially in services.‘
With the UK’s inflation rate decreasing, will the central bank cut interest rates?
The UK has steadily reduced its inflation from a high of 11%. However, the figure is still lower than the Bank of England’s 2% target.
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According to UK Finance Minister Jeremy Hunt, ‘Inflation never falls in a perfect straight line, but the plan is working; we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months.‘
According to Suren Thiru, economics director at ICAEW, the Bank of England may begin cutting interest rates in the summer of 2024.