The unexpected rise in inflation marks a sharp increase from the anticipations set by economists, who had predicted a reading of 2.8%. The core inflation, which omits the more volatile expenses associated with energy, food, alcohol, and tobacco, saw a significant uptick to 3.7% compared to the previous month’s rate of 3.2%. This marks the highest inflation rate since March of last year.
According to the ONS, transportation and food, along with non-alcoholic beverages, were the primary contributors to this month’s consumer price index (CPI) adjustment. Grant Fitzner, the ONS’ chief economist, remarked on social media that the factors driving the increase included “air fares not falling as much as we usually see at this time of year,” which was impacted by the timing of holiday travel. “This was the weakest January dip since 2020,” he added.
Food prices, especially for meat, bread, and cereals, showed notable rises. Additionally, private school fees contributed substantially due to new VAT rules, inflating costs by nearly 13% for the month.
The Bank of England, earlier in February, responded to the sluggish economic growth by reducing its interest rate to 4.5%, signaling potential additional cuts despite the inflation spike. The central bank highlighted that soaring global energy prices and regulated price changes might further elevate inflation to 3.7% in the year’s third quarter, though it anticipates a retreat to its 2% target by 2027.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented that the inflation surge was anticipated, though larger than expected. She noted the enduring influence of energy prices on inflation, predicting a decrease below 2% by 2026. “The risk is that the rise in inflation proves more persistent,” Gregory expressed, cautioning that interest rates might not decrease as swiftly as anticipated.
In the wake of this report, UK Chancellor Rachel Reeves acknowledged the financial challenges faced by many families, asserting her commitment to economic growth and improving disposable income for citizens. Despite the inflation announcement, the British pound remained stable against the US dollar at $1.2615.
The latest figures underscore the complexity of the UK’s economic landscape, with inflation rates unexpectedly high and influencing policy considerations at the central bank level. As the Bank of England navigates these turbulent economic waters, stakeholders will keenly watch for future adjustments in interest rates and fiscal policies.
