UK inflation falls for third straight month but remains close to 40-year high
UK inflation fell for a third consecutive month in January although remained in double-digits as the cost of living still remains at one of the highest levels in 40 years.
Inflation eased slightly to 10.1% in January from 10.5% the previous month. It is the latest sign that the UK might have seen the worst of inflation after a 41-year high of 11.1% was recorded in October.
Inflation shows how the prices of goods and services have changed over 12 months. For example, if something cost £1 last year and the rate of inflation is 10%, it would cost £1.10 today.
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The Office for National Statistics (ONS) said the drop was largely due to the price of fuel and cost of restaurants and hotels slowing. But it said this was offset by rising prices of alcohol and tobacco.
Food inflation also remained high in January at 16.7% and is one of the main drivers fuelling overall inflation, along with energy bills, according to the ONS.
Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to Jan 2023, down from 9.2% in Dec 2022.
CPI rose by 10.1%, down from 10.5%.
➡️ https://t.co/kjbxJTBh6A pic.twitter.com/yVhxCbnrJ8
— Office for National Statistics (ONS) (@ONS) February 15, 2023
Grant Fitzner, chief economist for the ONS, said: “Although still at a high level, inflation eased again in January.
“This was driven by the price of air and coach travel dropping back after last month’s steep rise.
“Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices.
“The cost of furniture decreased by more than this time last year, in line with traditional New Year discounting. These were offset by rising prices for alcohol and tobacco, following on from seasonal price cuts in December and a more subdued rise at the same time last year.
He added: “There are further indications that costs facing businesses are rising more slowly, driven by falls in crude oil, electricity and petroleum prices.
“However, business prices remain high overall, particularly for steel and food products.”
Responding to the figures Chancellor Jeremy Hunt said: "While any fall in inflation is welcome, the fight is far from over.
"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."
Helen Dickinson, chief executive of the British Retail Consortium, warned households are still being squeezed by high prices.
She said: “While inflation eased for the third month in a row, households are still being squeezed by high prices. The cost of food remains elevated, with the ripple effect from the war in Ukraine pushing up the price of food due to the knock-on increases from high fertiliser and energy prices. So as Christmas discounts faded away, households will have felt the pressure in their weekly grocery shop.
“Despite this, consumers were offered some relief, as the prices of petrol and diesel fell. In addition, clothing and footwear inflation eased as retailers offered bigger discounts in the January sales. Retailers remain committed to doing everything they can to keep the price of essentials low for consumers, expanding value ranges and offering discounts for vulnerable groups.”
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The latest data from the ONS eases the pressure on the Bank of England to increase interest rates aggressively, which would give some breathing room to borrowers after 10 successive rate rises in the past 18 months
Alice Haine, personal finance analyst at Bestinvest, said: “With mortgage rates also easing from their October highs and more fixed-rate deals under 4% now emerging, the hope is that rates could drop back further as competition for business heats up.
"Borrowers that have already locked in a new product in recent weeks may even want to consider contacting their broker again to see if it is possible to negotiate a fresh deal. But the ultra-cautious might want to hold off a little longer to see if rates come down any further."
The Bank of England predicted that CPI will fall this year, with governor Andrew Bailey recently saying there has been a “turning of the corner” on inflation in recent months due to falling fuel prices and supply chain issues easing. However, inflation remains well above the BoE mandate of 2%.
Watch: How does inflation affect interest rates?
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