UK Inflation Falls But Remains in Double Digits at 10.1%

The Office for National Statistics said the annual inflation rate as measured by the consumer prices index fell to 10.1%, continuing a decline from 10.5% in December and its recent peak of 11.1% in October. City economists had forecast a modest fall to 10.3%, The Guardian reported.

The latest fall was driven by a continued drop in petrol and diesel prices for motorists at the start of the year, as well as the price of air and coach travel falling back after a steep rise in December.

Restaurant, cafe and takeaway prices also fell, while the cost of furniture dropped as retailers put on January sales.

The latest ONS prices data comes as the Bank of England considers a further rise in interest rates to tackle inflation at the highest levels since the early 1980s, in a move adding to pressure on borrowers after 10 successive rate rises in the past 18 months.

Prime Minister Rishi Sunak has also promised to halve the annual inflation rate this year as the cornerstone of his economic plans. Most economists expect inflation to fall back over the coming months amid a drop in global energy prices, and as the initial surge in markets after Russia’s military operation against Ukraine drops out of the annual inflation rate.

Jeremy Hunt, the chancellor, stated, “While any fall in inflation is welcome, the fight is far from over", adding, “High inflation strangles growth and causes pain for families and businesses – that’s why we must stick to the plan halve inflation this year, reduce debt and grow the economy.”

The ONS said there were further indications that costs facing businesses are rising more slowly than in previous months, driven by falls in crude oil, electricity, and petrol prices.

However, despite the latest fall in the headline reading, prices remain high for consumers and are still accelerating at one of the fastest annual rates since 1981.

The latest snapshot showed the inflation rate for food and drink fell slightly from 16.9% in December to 16.8% last month, among the fastest rates since the late 1970s. Rising prices for alcohol and tobacco also added to upward pressure on inflation, following on from seasonal price cuts in December.

The government is preparing to reduce the level of energy support for households and businesses this spring, amid concerns from charities and company bosses that Britain’s cost of living emergency is far from over.

Rachel Reeves, the Shadow Chancellor, said, “Despite Britain’s enormous potential, in April households will be hit by another economic blow when energy prices go up", adding, “With inflation still close to a 40 year high, people will be asking if 13 years of Tory government has left them and their family feeling better off? The answer will be no.”

Economists said the fall could ease the pressure on the Bank of England to raise interest rates above the current rate of 4%, the highest level since the 2008 financial crisis.

Services inflation fell back from 6.8% in December to 6% in January. The figure is closely watched by the central bank for signs that rising workers’ pay is leading to companies pushing up their prices.

James Smith, an economist at the Dutch bank ING, said: “A word of caution: one month does not make a trend. By definition, the Bank of England’s focus on ‘persistence’ suggests policymakers are going to be less fazed by month-to-month gyrations in this data. That said, our view is that services inflation has probably peaked.”