UK inflation stays flat at 4% in January
Newsflash: The UK’s consumer price index (CPI) inflation has stayed flat at 4% in January – unchanged from December.
Economists had expected a small increase to 4.2%, so this is a softer reading than expected.
Key events
The political reaction to the inflation reading has started.
Here is what chancellor Jeremy Hunt had to say:
Inflation never falls in a perfect straight line, but the plan is working; we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months.
Rachel Reeves, Labour’s shadow chancellor, said:
After 14 years of economic failure working people are worse off. Prices are still rising in the shops, with the average households’ costs up £110 a week compared to before the last election. Inflation is still higher than the Bank of England’s target and millions of families are struggling with the cost of living.
The Conservatives cannot fix the economy because they are the reason it is broken. It’s time for change. Only Labour has a long-term plan to get Britain’s future back by delivering more jobs, more investment and cheaper bills.
We usually quote inflation as an annual number, but the monthly reading also suggests the downward trajectory: on a monthly basis, the consumer price index (CPI) fell by 0.6% in January.
The core measure of CPI also remained unchanged in January, at 5.1% annually. And that was lower than the 5.2% expected by economists. The core measure ignores volatile energy, food, alcohol and tobacco to try to get a more accurate picture of underlying inflationary pressures.
The headline inflation reading supports the interpretation (see opening post) that price pressures are easing in the UK.
Here is the ONS’s graph showing that trajectory, starting in 2014. Inflation spiked in 2022 after Russia’s full-scale invasion rocked global energy markets, before falling back as those increases faded.
Rising energy prices – after Great Britain’s energy regulator raised the price cap – were the main reason that inflation stayed at 4%, according to the UK’s Office for National Statistics (ONS).
But it was furniture and household goods that prevented the expected increase.
It said:
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), while the largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages.
UK inflation stays flat at 4% in January
Newsflash: The UK’s consumer price index (CPI) inflation has stayed flat at 4% in January – unchanged from December.
Economists had expected a small increase to 4.2%, so this is a softer reading than expected.
UK inflation expected to rise, say economists
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
UK inflation has fallen sharply in the last year as the global energy market has calmed down following the chaos caused by Russia’s full-scale invasion of Ukraine. But inflation may well have ticked upwards in January: we will find out whether that was indeed the case at 7am UK time.
Economists are forecasting a small increase in the UK’s consumer price index (CPI) in January. A poll by Reuters of economists suggests that inflation will rise from 4% in December to 4.2%.
That would be a second consecutive monthly increase, although still well down from its 41-year high of 11.1% in October 2022. The below chart shows the data for the last five years up to December.
Sanjay Raja, senior economist at Deutsche Bank, said:
After headline inflation surprised to the upside in December, we expect a further – albeit marginal – jump in inflationary pressure.
However, Raja warns against getting too excited if inflation does rise as expected. The rate will be “lifted in large part by positive base effects”, meaning that the index was temporarily lower last year than would otherwise be expected. That has partly been caused by increases in January to the government’s energy price cap And factory prices tracked by the producer prices index (PPI) are also softening, which should eventually be passed through to slowing inflation for consumers.
Raja said:
Looking ahead, we continue to see disinflationary pressures build, consistent with slowing survey and PPI data. We see CPI slowing below 2% year-on-year in [the second quarter of 2024], before edging a little above 2% through [the second half of 2024].
Looking ahead, we also have the second estimate for eurozone GDP. The first reading showed 0% growth. That’s hardly something to write home about, but it took economists by surprise, and meant that the bloc avoided a technical recession.
We will be on the lookout for any downward revisions for the fourth quarter, which would mean that the eurozone was, in fact, in a technical recession. Downward revision or not, it would hardly change the situation: Europe’s economy is stuttering as Germany struggles.
The agenda
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7am GMT: UK consumer price index inflation (January; previous: 4% annual; consensus: 4.2%)
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10am GMT: Eurozone GDP growth rate (fourth quarter of 2023; prev.: 0.1% quarter-on-quarter; cons.: 0%)
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10am GMT: Eurozone industrial production (December; prev.: -6.8% year-on-year; cons.: -4.1%)
