UK inflation slips to six-month low of 10.1%

UK inflation slowed more than expected to a six-month low in January, adding to growing signs that price pressures have peaked.

The annual rate of consumer price inflation eased to 10.1 percent in January, the Office for National Statistics said on Wednesday, from 10.5 percent in December. Inflation hit a high of 11.1% in October.

January’s reading was below the 10.3 percent forecast by economists polled by Reuters.

Core inflation, which strips out volatile food, energy, alcohol and tobacco prices, fell to 5.8% in January from 6.3% the previous month. The rate, a closely watched measure of underlying price pressure, was well below the 6.2% economists had forecast.

“With the end of the inflationary threat on the horizon, the Bank of England is under increasing pressure to change course by ending the current cycle of tightening,” said Yael Selfin, chief economist at consultancy KPMG.

Line chart of Annual % Change in Consumer Price Index showing that UK inflation eased in January

The Bank of England recently predicted that headline inflation would fall “sharply” for the rest of the year due to lower energy price growth. He signaled that the tightening cycle could be coming to an end, while warning of the risks of “greater persistence” in underlying inflation.

However, services inflation, a measure of domestic price pressures, also fell sharply to 6% in January from 6.8% the previous month.

“It is the easing of services inflation that will do most to reassure the Bank of England that inflation is moderating as it had hoped,” said Ruth Gregory, an economist at Capital Economics. It added that the change in interest rates rising from the current 4 percent to its forecast of 4.5 percent “is now a little bit weaker.”

Markets are pricing in a 0.25 percentage point rise in interest rates next month, a slowdown from the half percentage point in February.

The slowdown will be little relief for households as prices remain high and inflation continues to rise faster than wages. In addition, food prices rose at an annual rate of 17 percent in January, unchanged from the previous month and the highest on record.

January’s slowdown in annual inflation was “led by a fall in the price of air and coach fares after last month’s sharp rise,” said Grant Fitzner, chief economist at the ONS. He added that “petrol prices continue to fall and there has been a drop in restaurant, coffee and takeaway prices.”

Annual growth in motor fuel prices slowed to 7.7% in January from a peak of 43.7% last July.

However, price pressures in the UK remain higher than in some other countries, partly due to energy costs.

US inflation slowed to a 15-month low of 6.4% in January. In the euro zone, preliminary data showed price growth slowed to an eight-month low of 8.5% in January, after energy inflation eased sharply.

You are viewing a snapshot of an interactive graphic. This is probably because you are offline or JavaScript is disabled in your browser.

Chancellor Jeremy Hunt said: “While any fall in inflation is welcome, the fight is far from over.

“High inflation is stifling growth and causing pain for families and businesses – that’s why we need to stick to the plan to halve inflation this year, reduce debt and grow the economy.”

Leave a Comment