Inflation remains at better than expected 4%

Bank of England’s governor Andrew Bailey said the inflation data is "quite encouraging" amid the Bank's ongoing attempts to bring the rate down to its target of 2%

Inflation remains at better than expected 4%

Inflation has remained at 4% despite forecasters predicting a rise, official figures show. The consumer price index (CPI) measure of inflation stood at 4% in January, the same as in December, according to the Office for National Statistics (ONS). Inflation managed to remain the same as last month and below economists’ expectations, including the Bank of England. The Bank of England forecast inflation to rise to 4.1%, while economists polled by Reuters expected it to increase to 4.2%.

The figures come after the cost of electricity and gas rose in January due to an increase in the energy price cap, meanwhile, the cost of second-hand cars also increased. However, this rise was offset by the first drop in food prices for more than two years, as well as falls in the costs of furniture and household goods, and non-alcoholic drinks. The ONS said monthly prices for food and non-alcoholic beverages fell by 0.4% between December and January, compared with a rise of 0.6% a year ago. Monthly prices for food (excluding non-alcoholic beverages) also fell by 0.4%. 

In response to the latest data, Chancellor Jeremy Hunt said: “Inflation never falls in a perfect straight line, but the plan is working; we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months.” The latest figures have raised hopes that the Bank of England could reduce interest rates and relieve the pressure placed on households and businesses, particularly SMEs. However, the Bank of England governor Andrew Bailey has dampened hopes of an interest rates cut. He stressed the need for further evidence of a cooling in wage rises before acting. 

Appearing before the House of Lords economics committee on Wednesday, Andrew Bailey said it was “encouraging” that inflation had remained unchanged at 4% in January but the previous month’s figure for the cost of living had been higher than predicted. Bailey said: “We slightly overshot last month and we slightly undershot this month. That leaves us pretty much where we were.” The governor said the Bank’s monetary policy committee – the nine-member body that sets interest rates – wanted to see more evidence of wage moderation before the prospect of interest rates potentially dropping.

This comes as the UK tips into a recession last year, the latest figures show. A recession happens when the economy contracts rather than grows over two consecutive three-month periods. A major measure of economic growth, gross domestic product (GDP) shrank 0.3% between October and December, the latest Office for National Statistics (ONS) data revealed. This is a bigger fall than predicted with economists forecasting a 0.1% contraction. It followed 0.1% of negative economic growth in the three months from July to September. Gross domestic product (GDP) is a key measure of all the economic activity of companies, the government, the public sector and individuals in a country. 

This recession is likely to be mild and short-lived, compared to the global financial crash of 2008 and 2009. This could be positive news for businesses and prompt interest rate-setters at the Bank of England to bring down interest rates sooner, reducing borrowing costs. Khalid Talukder, co-founder, DKK Partners said it is essential for the government to provide businesses with the resources to advance into international markets for continued growth. He said: “Despite the UK entering a technical recession and confidence hitting an all-time low, it is imperative for businesses to keep advancing and venture into emerging markets, relying on innovation for growth.” 

“Britain is home to many outstanding business achievements, but a significant number of firms find it challenging to break into international markets due to the lack of necessary payments infrastructure. As UK businesses prepare for expansion, it’s crucial that fast-growing companies have access to the essential resources required to thrive in the global marketplace.”

Latifa Yedroudj
Latifa Yedroudj

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