United Kingdom: Inflation holds steady in January, but remains elevated
February 13, 2018
Consumer prices fell 0.5% in January over the previous month, contrasting sharply with December’s 0.4% rise but coming in above analysts’ expectations of a 0.6% decline. January’s drop was largely attributable to lower prices for transportation, furniture, household equipment and maintenance, and clothing and footwear.
Inflation in January was unchanged from December’s figure of 3.0%, slightly above market expectations of 2.9%. The largest downward contribution to January’s print came from motor fuel prices, which did not rise by as much as they did in the same period last year. Conversely, prices for recreation and culture did not fall by as much as they did a year ago, slightly pushing up on the month’s inflation figure. Meanwhile, annual average inflation increased from 2.7% in December to 2.8% in January.
January’s inflation reading came in substantially above the Bank of England’s 2.0% target, reinforcing expectations that interest rates will start to rise gradually, with some panelists already factoring in the first hike to come by the second quarter of the year.
UK Inflation Forecast
The Bank of England sees inflation dipping to 2.3% in Q1 2019 and 2.2% in Q1 2020. FocusEconomics Consensus Forecast panelists expect inflation to average 2.5% in 2018 and 2.2% in 2019, as the impact of the currency depreciation gradually fades.
Author: Javier Colato, Economist