UK inflation cools to 10.1%

British core CPI – which excludes energy, food, alcohol and tobacco – fell to 5.8% in January from December’s 6.3%…reports Asian Lite News

British inflation fell by more than expected in January and there were signs of cooling price pressure in parts of the economy watched closely by the Bank of England, adding to signs that further hefty interest rate hikes are unlikely.

Annual consumer price inflation (CPI) cooled to 10.1% last month, the lowest reading since September, the Office for National Statistics (ONS) said on Wednesday.

Economists had forecast that the annual CPI rate would drop to 10.3% in January, moving further away from October’s 41-year high of 11.1% but continuing to squeeze households’ living standards.

British core CPI – which excludes energy, food, alcohol and tobacco – fell to 5.8% in January from December’s 6.3%.

Sterling fell against the U.S. dollar and the euro after the data. British government bond prices rose sharply as investors ruled out the chance that the BoE will need to raise interest rates in March by another 0.5 percentage points. Most expect a quarter-of-a-percentage-point raise next month.

Earlier this month, the BoE said it saw signs that the surge in consumer prices had turned a corner and it suggested it was close to ending its run of interest rate hikes.

Prices of services, which are also in the BoE’s spotlight, slowed their rise in January, increasing by an annual 6.0% compared with 6.8% in December.

“The Bank of England will be pleased to see that services inflation is starting to subside. They will also be reassured by the latest data indicating that private sector wage growth is easing,” said Jake Finney, an economist at PwC.

Data on Tuesday showed strong annual increases in wages but slowing growth over the most recent months.

Finney said he still expected the BoE to raise interest rates by another 0.25 percentage points in March, as do most economists polled by Reuters.

Finance minister Jeremy Hunt said the government would not relax its guard.

“While any fall in inflation is welcome, the fight is far from over,” he said. The ONS said transport and hospitality prices helped to drag down inflation last month.

Economists said the numbers added to signs that inflation was on course to fall further from its peak last year but could also be heralding the recession expected for Britain’s economy in 2023.

And while the rate of inflation for food and non-alcoholic drinks slowed to 16.7%, this was barely less than the 45-year record of 16.8% struck in December, little comfort for households experiencing a severe cost-of-living squeeze.

ONS estimates for inflation by income group suggested the poorest suffered inflation rates above 15% in late 2022.

“With energy and food prices remaining stubbornly high, poorer households continue to face far higher living costs than richer families,” said James Smith, research director at the Resolution Foundation think-tank.

Both food and energy bills have been rising following Russia’s invasion of Ukraine almost a year ago, with supplies of both commodities being disrupted.

But in the case of olive oil, prices have been higher in recent months largely due to summer heatwaves hitting crops in Spain, a huge exporter of the product.

Kyle Holland, oils analyst at data firm Mintec, said production in Spain was down to 720,000 metric tonnes, from the usual 1.5 million.

“When there is not enough rain, [olive trees] cannot produce any olives. A lot of trees have not produced enough. It’s a very steep decline,” he said.

Grant Fitzner, chief economist for the ONS, said there were signs costs facing businesses were “rising more slowly”, but warned “business prices remain high overall”.

He said air and coach travel prices had dropped back after December’s “steep rise”.

“Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices,” he added.

But the falls in those prices were offset by rising prices of alcohol and tobacco.

Chancellor Jeremy Hunt also warned the “fight is far from over” on rising prices and said it was why the government “must stick to the plan to halve inflation this year, reduce debt and grow the economy”.

Although the government has pledged to halve inflation, many economists have predicted it will happen naturally, as the cost of energy falls.

Shadow chancellor Rachel Reeves said families would feel no better off following 13 years of Conservative government and repeated Labour’s call for higher taxes on oil and gas companies to ease bills when energy prices go up in April.

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