Not Out of the Woods Yet: UK Inflation Stayed At 4% in January but Chancellor Admits UK Has a Long Way to Go

As inflation stayed the same throughout December and January, Chancellor Jeremy Hunt admits there’s a long way to go before the target is reached. Experts predict the UK is right on track to hit pre-pandemic levels.

Inflation Stays Steady 

Despite expectations of a rise, UK inflation held steady at 4% last month, which is still double the government’s target of 2%, according to Chancellor Jeremy Hunt. The lack of a rise in inflation increased the likelihood of the Bank of England (BoE) considering interest rate cuts in response.

Experts fully expected UK inflation to rise again in January to 4.2% due to the increased energy price cap per household last month.

Consumer Price Index Stability

The Office for National Statistics reported that prices remained at a consistent annual rate of 4% in January, aligning with the figures from December.

The question on the British public’s minds is now that inflation is staying the same, when will energy bills stop rising so heavily despite companies announcing record profits?

The Office for National Statistics claimed that the drop in prices of groceries and furniture contributed to the lack of growth, while the increase came from increases in energy bills and services.

“The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from housing and household services,” the Office for National Statistics said in a statement.

“The largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages,” it continued.

Economic Impact of Pandemic and Energy Crisis

Economist Thomas Pugh anticipated a decline in inflation, “The surge in prices of the pandemic and energy crisis will soon be a bad memory,” he said.

According to Pugh, the public can now anticipate cuts in interest rates in the Summer months so long as inflation drops soon. A 0.6% decline in consumer prices reflected a subtle adjustment in the overall cost of living in the UK.

Chancellor Praises Government Progress

“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,” said Chancellor Jeremy Hunt.

Shadow Chancellor Rachel Reeves said, “After 14 years of economic failure, working people are worse off. Prices are still rising in the shops, with the average household’s costs up £110 a week compared to before the last election.”

“Inflation is still higher than the Bank of England’s target, and millions of families are struggling with the cost of living,” Reeves continued.

Currency and Market Movements

Following the data release, Sterling experienced a 0.4% decline to $1.2544, while two-year gilt yields and the FTSE 100 demonstrated notable adjustments.

According to economy analyst Suren Thiru, this data is “further evidence that the UK is close to winning its fight against soaring inflation.”

Thiru argued that “Inflation’s journey back to the Bank of England’s 2% target should now accelerate,” bringing the UK back on track to pre-pandemic levels.

A Look into the Labor Market

Senior European Economist Marion Amiot mirrored these comments, arguing, “The latest inflation print is another reflection of what is happening in the labor market: a tight labor supply is sustaining high wage growth and thus underlying inflationary pressures, especially in services,” 

“Aside from easing energy, food and producer prices, falling vacancies and easing wage pressures are offering positive signs for the Bank of England that tighter financing conditions are cooling labour demand,” noted Amiot.

Thiru also noted that “a sizeable fall in energy bills from April and lower food costs,” should “drag inflation noticeably lower by the Spring.”

A Fact to Remember

As the UK faces a crisis in rising costs and labour demand, and many companies continue with layoffs, the news is welcomed, and experts can predict a positive 2024. However, it’s still important to remember that millions of families are still struggling to pay for food and energy across the UK.

The post Not Out of the Woods Yet: UK Inflation Stayed At 4% in January but Chancellor Admits UK Has a Long Way to Go first appeared on Pulse365 Limited.

Featured Image Credit: Shutterstock / Alexandros Michailidis

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