UK inflation rate unexpectedly holds in January in relief for BoE

Road construction workers carry out work outside the Bank of England in the City of London financial district in London, Britain, Feb 13, 2024. REUTERS/Isabel Infantes/File photo

LONDON  -British consumer price inflation unexpectedly held steady at an annual rate of 4 percent in January, unchanged from December, the Office for National Statistics said on Wednesday in a boost for the Bank of England.

Economists polled by Reuters had forecast an increase to 4.2 percent. Inflation is expected to fall further in the coming months.

Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, was also unchanged at 5.1 percent.

But services inflation – an indicator of domestic price pressures which is closely watched by the BoE as it considers when to start cutting interest rates – rose to 6.5 percent from 6.4 percent in December.

READ: Tobacco duty causes surprise boost to UK inflation in December

The BoE fears rapid wage growth – which makes up much of the inflation rate in the services sector – could add more inflationary pressure across the economy.

Wages up 6.2%

Data published on Tuesday showed regular wages rose by an annual 6.2 percent in the last three months of 2023, the slowest increase in over a year but about double the pace the BoE views as consistent with getting inflation back sustainably to 2 percent.

READ: UK wage growth slows again but BoE likely to remain on alert

“Inflation never falls in a perfect straight line, but the plan is working, we have made huge progress in bringing inflation down from 11 percent, and the Bank of England forecast that it will fall to around 2 percent in a matter of months,” British finance minister Jeremy Hunt said.

Prices for food and non-alcoholic drinks were 6.9 percent higher in January than a year earlier, down from December’s 8 percent rise.

Sterling weakened against the dollar and the euro immediately after the inflation data was published.

Wednesday’s stable British inflation data followed a higher-than-expected increase in price growth in the United States announced on Tuesday.