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UK Inflation Holds at 4%

In the United Kingdom, inflation remained at 4% in January, demonstrating what corresponds to such a concept as stability.

UK Inflation Holds at 4%

The mentioned result, which is an example of sustainability at a time of global economic challenges, is largely because the cost of furniture, household goods, non-alcoholic beverages, and food has decreased in the UK.

The headline consumer price index in the United Kingdom fell to -0.6% last month. This indicator returned to negative territory after December growth of 0.4% compared to the November figure and 4% year-on-year.

Economists interviewed by the media prepared a consensus forecast that envisaged January inflation in the United Kingdom at 4.2%.

The UK Office for National Statistics, which published inflation data, on Wednesday, February 14, reported that the largest contribution to the monthly change in CPIH and the annual consumer price index was made by housing and household services, mainly higher gas and electricity charges. In terms of reduction, the most important factors were the decline in the cost of food, non-alcoholic beverages, and furniture.

The core consumer price index, which does not take into account volatile prices for food, energy, alcohol, and tobacco, amounted to 5.1% year-on-year in January. This indicator is below the consensus estimate of 5.2%. Monthly, the core consumer price index fell to -0.9%. The forecast for this indicator was -0.8%.

UK Finance Minister Jeremy Hunt said that inflation never decreases in a perfectly straight line, but the plan to achieve a reduction in the growth rate of the cost of goods and services is working. He noted the tremendous progress of the United Kingdom authorities in reducing the mentioned indicator from 11%. Jeremy Hunt also said that the Bank of England forecasts inflation to fall to about 2% over the next few months.

In January, the annual consumer price index for goods slowed to 1.8% from 1.9%. At the same time, the price pressure in the sphere of services remained at a high level. Last month, the annual index of consumer prices for services rose to 6.5% from 6.4%.

Marion Amiot, senior European economist at S&P Global Ratings, says that the latest inflation data is another reflection of what is happening in the labor market. According to the expert, currently, a limited supply of labor supports high wage growth and is a basic element of inflationary pressure, especially in the sphere of services.

Marion Amiot, at the same time, notes that inflation is declining against the background of current realities. The expert notes that, in addition to cheaper energy and food, the reduction in the number of vacancies and the easing of pressure on wages are positive signals for the Bank of England that the tightening of financing conditions contributes to a cooling in demand for labor.

The United Kingdom has lagged behind its peers in slowing the growth rate of the cost of goods and services. At the same time, the headline consumer price index has been on a downward trajectory since peaking at 11.1% in October 2022.

The United Kingdom’s economic system has so far managed to avoid recession. The Bank of England has implemented policies to raise interest rates rapidly to moderate the inflationary process. The labor market and wage growth have slowed down, but are uncomfortably robust for the financial regulator. The Bank of England is aiming to bring inflation back to the 2% target.

There are expectations in the expert community of a small technical recession in the United Kingdom.

Suren Thiru, Director of Economics at ICAEW, says that the softer-than-expected UK inflation figures are evidence that London is close to victory in the fight against the rising cost of goods and services. According to the expert, the return of inflation to the Bank of England’s target of 2% should accelerate, as lower energy bills and cheaper food will contribute to achieving the result by spring. At the same time, Suren Thiru noted that core inflation and inflation in the sphere of services remain uncomfortably high. The expert noted that the slowdown in wage growth and a struggling economy signal a decrease in the mentioned indicators during 2024.

Suren Thiru says that any announcements of tax cuts in the spring budget statement of the Government of the United Kingdom next month may cause the Bank of England to adhere to a tight monetary policy for a longer period.

As we have reported earlier, UK Executives Urge Bank of England to Cut Rates.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.