UK Inflation Holds Steady at 4% in January Amid Easing Prices for Household Goods

In January, UK inflation maintained its level at 4% year-on-year, buoyed by declining prices for furniture, household goods, and food, according to data released by the Office for National Statistics on Wednesday.

On a monthly basis, the headline consumer price index (CPI) saw a decrease of -0.6%, returning to negative territory after December’s surprising increase of 0.4%. Economists had anticipated a year-on-year rate of 4.2% for January, with a month-on-month forecast of -0.3%, as per a Reuters poll.

The Office for National Statistics highlighted that higher gas and electricity charges were the primary contributors to the monthly change in both CPIH and CPI annual rates, while furniture, household goods, and food and non-alcoholic beverages exerted downward pressure on inflation.

The core CPI, excluding volatile items like food, energy, alcohol, and tobacco, registered an annual rate of 5.1%, below the consensus estimate of 5.2%. Every month, core CPI dipped to -0.9%, below the forecast of -0.8%.

UK Finance Minister Jeremy Hunt remarked that the government’s plan is working, citing significant progress in reducing inflation from 11% and the Bank of England’s forecast of a decline to around 2% in the coming months.

While the annual rate of CPI goods slowed from 1.9% to 1.8%, inflationary pressures persisted in the services industry, with the CPI services annual rate climbing from 6.4% to 6.5%.

Marion Amiot, senior European economist at S&P Global Ratings, noted that tight labor supply has sustained high wage growth, contributing to underlying inflationary pressures, particularly in services.

The UK has been grappling with inflationary challenges since October 2022, when the headline CPI peaked at 11.1% year-on-year. Despite rapid interest rate hikes by the Bank of England to curb inflation, the British economy has thus far avoided recession. However, preliminary estimates suggest a potential slight technical recession in the fourth quarter.

Suren Thiru, economics director at ICAEW, viewed the softer-than-expected figures as evidence of the UK’s progress in combating inflation. He anticipated a notable decline in inflation by spring, driven by lower energy bills and food costs. Nevertheless, Thiru cautioned that any tax cuts announced in the government’s Spring Budget statement next month could influence the Bank of England to maintain tighter policy for a longer duration.

Highlights of this News

1. UK inflation remains stable at 4% year-on-year in January, with a month-on-month decline of -0.6%, driven by easing prices for furniture, household goods, and food.
2. Economists had forecasted a year-on-year rate of 4.2% for January and a month-on-month decrease of -0.3%.
3. Higher gas and electricity charges contributed to the monthly change in both CPIH and CPI annual rates, while furniture, household goods, and food and non-alcoholic beverages exerted downward pressure on inflation.
4. The core CPI, excluding volatile items, registered an annual rate of 5.1%, below the consensus estimate of 5.2%, with a monthly decline to -0.9%.
5. UK Finance Minister Jeremy Hunt stated that the government’s plan to combat inflation is working, with progress made in reducing inflation from 11% and the Bank of England’s forecast of a decline to around 2% in the coming months.
6. Despite a slight slowdown in the annual rate of CPI goods, inflationary pressures persisted in the services industry, with the CPI services annual rate climbing from 6.4% to 6.5%.
7. Tight labor supply has sustained high wage growth, contributing to underlying inflationary pressures, particularly in services, according to Marion Amiot, senior European economist at S&P Global Ratings.
8. The UK has been contending with inflationary challenges since October 2022 when the headline CPI peaked at 11.1% year-on-year, with preliminary estimates suggesting a potential slight technical recession in the fourth quarter.
9. Suren Thiru, economics director at ICAEW, viewed the softer-than-expected figures as evidence of the UK’s progress in combating inflation, anticipating a notable decline in inflation by spring. However, he cautioned that any tax cuts announced in the government’s Spring Budget statement next month could influence the Bank of England to maintain tighter policy for a longer duration.