UK inflation holds steady at 4%

UK inflation remained unchanged in January, official data showed on Wednesday, coming in narrowly better than forecast.

According to the Office for National Statistics, the consumer price index rose 4% in the 12 months to January, unchanged on December. Analysts had been expecting a rise to 4.2%.

The ONS said food prices fell on the month for the first time in over two years. Furniture and household goods prices also decreased, though that was partly offset by higher gas and electricity charges and second-hand car prices, which went up for the first time since May.

On a monthly basis, CPI eased 0.6%.

Including owner occupiers’ housing costs, inflation was 4.2%, also unchanged on December.

Core inflation, which strips out the more volatile elements of food, alcohol and energy, was steady at 5.1%.

"It’s not unusual when inflation is falling to see these kind of pauses," Grant Fitzner, chief economist at the ONS, told the BBC.

The Bank of England hiked the cost of borrowing throughout 2022 and into 2023, as it looked to tackle surging inflation.

While inflation is now well below a peak of 11.1%, reached in October 2022, it remains above the BoE’s long-term target of 2%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The slowing trend in consumer price rises remains intact, despite the stable headline rate of CPI inflation in January.

“As expected, the contribution from electricity and natural gas prices to the headline rate increased, driven by an increase in Ofgem’s price cap, which will be short-lived. By contrast, food CPI inflation dropped to 6.9% from 8% in December.

“It remains likely that the headline rate of CPI inflation will fall back to about 2% in April and then modestly undershoot the 2% target over the following six months.”

Shore Capital said: “While the faster money will fret around the edges, we see this as a sound position, with inflation in much more comfortable territory for consumers and businesses alike, almost in fact in Goldilocks territory.

“Quite whether the Monetary Policy Committee feels the same, who knows. We continue to expect, external shocks aside, more stable and easing CPI in 2024, with a first interest rate cut by the end of June.”

Martin Beck, chief economic advisor to the EY Item Club, said: “Disruption to shipping due to geopolitical tensions presents a potential risk to inflation’s descent. But with shipping costs only a tiny part of the price consumers pay for goods, that inflationary risk looks modest at present.

“Overall, the latest inflation data should reassure the MPC that the time to start cutting interest rates is approach. [We] continue to expect the first cut in Bank Rate in May.”

Alpesh Paleja, CBI lead economist, said: "No movement in inflation is not entirely a surprise, due to base effects and a small rise in Ofgem’s energy price cap coming into effect.

"We may see a few more bumps in the road over the coming months, but the broad direction of travel with inflation is encouraging, having fallen considerably from its double digit highs 15 months ago."