ANNUAL consumer prices index inflation in the UK fell by more than expected in January but remained above 10 per cent and was much higher than that in the eurozone and US, official data show.
Figures published yesterday by the Office for National Statistics revealed annual UK consumer prices index (CPI) inflation, which hit a 41-year high of 11.1% in October, fell from 10.5% in December to 10.1% last month.
The consensus expectation in a poll of economists by Reuters was that annual CPI inflation would have fallen to 10.3% in January.
However, the UK’s annual CPI inflation rate in January remains more than five times the 2% target set for the Bank of England by the Treasury.
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And it is much higher than the 8.5% annual consumer prices inflation reading for the eurozone for January. In the US, annual consumer prices inflation was 6.4% in January.
The UK’s labour and skills shortages crisis is viewed as one factor which could mean inflation remains significantly higher in Britain than elsewhere.
And former Bank of England governor Mark Carney has been among those to highlight the upward pressure on UK inflation from Brexit.
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Some economists took heart – from the perspective of how much further UK base rates might have to rise from their current 4% level – from declines in January in annual core and services inflation measures. These are watched closely by the Bank of England.
Luke Bartholomew, senior economist at Edinburgh-based fund manager abrdn, said: “UK CPI inflation was softer than expected in January…We expect headline inflation to continue to fall sharply as the year progresses, with powerful base effects leading to favourable moves in wholesale energy prices. Economic weakness will drag inflation well below 5% by the end of the year.”
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He observed that “the path of monetary policy will be driven less by these well-understood headline inflation dynamics, and instead on signs of more persistent...inflation pressure”.
Mr Bartholomew added: “On this front, the inflation report provided the most encouraging picture it has in some time. Core inflation fell from 6.3% to 5.8%, while services inflation, which is most closely linked to domestic demand conditions, declined from 6.8% to 6%. This is a broadly similar signal to the one provided in [Tuesday’s] labour market report: an economy that is overheating and generating too much inflation pressure but moving slowly in the right direction.
“We continue to expect the Bank of England to tighten monetary policy further, but [the latest inflation] report does somewhat reduce the risk of a much higher terminal interest rate.”
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