Inflation in the UK reached a 10-month high in January, according to official numbers released Wednesday, lowering hopes of swift interest rate cuts from the Bank of England.
According to the Office for National Statistics, inflation, as measured by the consumer price index, increased to 3% in the year to January, up from 2.5% the previous month.
The surge, which pushed inflation above the bank’s objective of 2%, was primarily due to increases in airfares, food costs, and private school fees following the new Labour government’s decision to levy a sales tax.
Economists had expected a 2.8% increase, but the magnitude of the increase has caught many off guard and will certainly raise anxiety among central bank rate-setters at a time when they are concerned about the UK’s sluggish economic growth.
Earlier this month, the bank reduced its main interest rate by a quarter of a percentage point to 4.50%, its third decrease in six months, while halving its 2025 growth prediction for the United Kingdom to 0.75%.
Most economists think that inflation will rise further in the coming months as a result of higher domestic energy bills but start to trend lower in the second half of the year, which will give -policymakers room to cut interest rates again — but maybe not as many times as previously thought.
“Another rate cut in March looks pretty unlikely, with the bank continuing with its gradual pace of easing for now,” said Luke Bartholomew, deputy chief economist at abrdn, formerly Aberdeen Asset Management.
