UK inflation rises to 10-month high of 3% in January

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UK inflation surged to a 10-month high of 3 per cent in January, surpassing economists’ forecasts and posing a challenge for the Bank of England amidst ongoing price pressures and a sluggish economy.

The Office for National Statistics reported that the annual inflation rate exceeded December’s 2.5 per cent and economists’ expected 2.8 per cent. Factors driving the increase included airfares dropping less than usual, higher costs for private schools due to VAT on fees, and rising prices for food and non-alcoholic drinks.

Services inflation climbed to 5 per cent in January from December’s 4.4 per cent, while core inflation rose to 3.7 per cent. Despite the rise, analysts believe that the Bank of England will continue to cut interest rates gradually.

BoE governor Andrew Bailey acknowledged the challenges posed by rising inflation and weak economic growth. He emphasized the central bank’s cautious approach to interest rate cuts in response to these challenges.

Following the latest data, traders are expecting two more quarter-point rate cuts from the BoE this year, although the likelihood of the first cut in March has decreased. The pound weakened against the dollar as a result.

Notable increases in education and food prices contributed to the inflation rise. Chancellor Rachel Reeves expressed concern for families struggling to cope with the cost of living, while facing criticism for tax hikes implemented in the previous Budget.

Shadow chancellor Mel Stride highlighted the financial strain on families due to inflation and tax policies. The public’s confidence in the government’s economic management has waned, according to recent polls.

Additional reporting by George Parker in London

This article has been edited for accuracy following a statement correction from the Treasury