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United Kingdom Inflation January 2024

United Kingdom: Inflation remains steady in January

Inflation came in at 4.0% in January, unchanged from December’s result and twice the Bank of England’s 2.0% target. However, the reading was below market expectations. Looking at the details of the release, lower price pressures for food were offset by smaller drops in housing and transport costs.

The trend pointed down, with annual average inflation coming in at 6.8% in January (December: 7.3%). Meanwhile, core inflation edged down to 5.0% in January, from the previous month’s 5.1%.

Finally, consumer prices fell 0.58% in January over the previous month, contrasting the 0.42% increase recorded in December. January’s result marked the weakest reading since January 2019.

Our Consensus is for inflation to fall sharply in the coming quarters on a higher base effect and an expected loosening of the labor market, but to remain slightly above the Bank’s target.

On the outlook, Berenberg’s Kallum Pickering said:

“Due to the rapid acceleration in price growth through 2022 and H1 2023, yoy inflation rates remain inflated by base effects – and hence give a distorted picture of the recent trend in prices. […] the picture is completely different on a six-month basis. With almost no change in the overall price level between August and January, six-month annualised inflation has hovered around 1% in the previous three prints. […] Short of another major supply shock to prices, yoy rates of headline and core inflation look set to fall rapidly further over coming months as base effects fully wash out.”

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