UK inflation was 4% in January, the same rate as in December, latest figures show. Forecasters had expected a slight rise to 4.2% – the Bank of England’s target, set by the government, is 2.00%.
This was despite the economy shrinking by a larger than expected 0.3% between October and December, after it had already contracted 0.1% between July and September 2023. This meant a technical recession because the UK economy shrank two quarters in a row (this is subject to revision) while for the whole of 2023, the UK economy grew by 0.1% .
The biggest upward factor was rising gas and electricity costs while the biggest downward factor was furniture and food for the lower led to the lower than expected inflation figure. On a monthly basis, food prices fell in January for the first time since September 2021. Chancellor Jeremy Hunt says: “The plan is working, we have made huge progress in bringing inflation down”.
Inflation peaked at 11.1% in October 2022 which the government pledged to halve the rate in 2023. The new data shows core inflation which excludes energy and food was also unchanged, at 5.1%.
Analysts are expecting that the central bank could start cutting its benchmark rate, which stands at 5.25 per cent, from June by a quarter of point while Financial Markets moved to price in close to three quarter-point rate cuts by the BoE this year, up from nearer two before the ONS release.
For reference, looking at the housing market after the latest mortgage rates were also marginally up on yesterday:
- The average two-year fixed mortgage today is 5.63%, up from 5.61%
- The average five-year fixed deal is 5.26%, up from 5.24%
Mortgage rates began falling earlier this year as competition intensified among lenders for people on the hunt for a new deal.
But it’s worth noting that while mortgage rates might be lower than last year, which saw a typical two-year deal hit 6.7%, many homeowners will still face much higher repayments with about 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.
(Source: BBC / FT)