In January, U.K. inflation remained unchanged at 4% year-on-year, supported by declining prices for furniture and household items, as well as food and non-alcoholic beverages.
Monthly, the main consumer price index dropped to -0.6%, reversing its positive trend from December when it unexpectedly rose by 0.4% month-on-month and 4% annually.
According to economists surveyed by Reuters, the anticipated consensus figures for January were 4.2% year-on-year and -0.3% for the month.
“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), the Office for National Statistics said Wednesday.
He added, “While the largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages,”
The closely watched core CPI figure — which excludes volatile food, energy, alcohol, and tobacco prices — came in at an annual 5.1%, below a consensus estimate of 5.2%.
Monthly, core CPI slid to -0.9%, below a -0.8% forecast.
How UK is winning against the inflation?
The United Kingdom has fallen behind its counterparts in reducing inflation, although the headline CPI has been generally decreasing since reaching its peak of 11.1% year-on-year in October 2022.
Despite the Bank of England’s swift interest rate hikes aimed at curbing inflation, the British economy has thus far avoided a recession.
However, labor market dynamics and wage growth have eased somewhat, though they still present challenges for a central bank striving to bring inflation back to its 2% target.
“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,” said Marion Amiot, senior European economist at S&P Global Ratings.
Nevertheless, there are expectations that the economy may have dipped into a slight technical recession in the fourth quarter, with initial estimates anticipated on Thursday morning.
Suren Thiru, economics director at ICAEW, remarked that the figures released on Wednesday, which were softer than anticipated, serve as “further evidence that the U.K. is nearing success in its battle against surging inflation.”
In an email by Thiru, he said, “Inflation’s journey back to the Bank of England’s 2% target should now accelerate, with a sizeable fall in energy bills from April and lower food costs likely to drag inflation noticeably lower by the Spring.”
He did, however, warn that although the Bank of England is anticipated to commence interest rate reductions during the summer.
Any proposals for tax reductions in the government’s Spring Budget statement next month could potentially compel the central bank to maintain tighter policies for an extended period.
