UK inflation stands at 4%, lower than expected

Economists polled by Reuters had issued a consensus forecast of 4.2% year-on-year for January and -0.3% for the month.

“The largest upward contribution to the monthly change in both annual CPI rates and annual inflation came from housing and household services (mainly higher gas and electricity tariffs), while the largest downward contribution came from furniture, household goods, food and non-alcoholic beverages,” the office said. National statistics on Wednesday.

The closely watched core CPI – which excludes volatile food, energy, alcohol and tobacco prices – came in at 5.1% annually, below the consensus estimate of 5.2%. On a monthly basis, the core CPI fell to -0.9%, below expectations of -0.8%.

“Inflation never lies in a perfect straight line, but the plan is working; we have made significant progress in bringing inflation down from 11%, and the Bank of England expects it will fall to around 2% within months.” British Finance Minister Jeremy Hunt said in a statement.

The annual goods CPI rate slowed from 1.9% to 1.8%, but price pressures in the services industry remained hot, with the annual services CPI rate rising from 6.4% to 6.5%.

The UK is winning its battle against inflation

“The latest inflation reading is another reflection of what is happening in the labor market: tight labor supply supports higher wage growth and thus underlying inflationary pressures, especially in services,” said Marion Amyot, chief European economist at S&P Global Ratings.

“However, recent developments will continue to put inflation on a downward path. Aside from easing energy, food and producer prices, falling job vacancies and easing wage pressures provide positive signals for the Bank of England, as tightening financing conditions slow labor demand.” .

The UK has lagged behind its peers in lowering inflation, but the headline CPI has been on an overall downward path since its peak in October 2022 of 11.1% year-on-year.

The British economy has so far managed to avoid recession in the face of a rapid rise in interest rates by the Bank of England, as it sought to ease inflation. Meanwhile, labor market and wage growth have softened, but will remain uncomfortably strong for the central bank as it aims to pull inflation back to its 2% target.

However, the economy is expected to enter a slight technical recession in the fourth quarter, with preliminary estimates released Thursday morning.

Suren Thero, director of economics at the Institute of Chartered Accountants ICAEW, said Wednesday's lower-than-expected figures were “further evidence that the UK is close to winning its battle against rising inflation.”

“Inflation’s journey back to the BoE’s 2% target should now accelerate, with a significant decline in energy bills from April and lower food costs likely to bring inflation down significantly by the spring,” Theroux said by email.

“Although core and services inflation remain uncomfortably high, pressure from weak labor demand, sluggish wage growth and a faltering economy means they should ease through this year.”

However, he warned that although the Bank of England is expected to start cutting interest rates over the summer, any announcements of tax cuts in the government's spring budget statement next month would risk prompting the central bank to keep policy tighter for longer. .