For a third consecutive month, the UK’s inflation rate decreased, but it stubbornly remained in double digits, five times higher than the Bank of England’s desired objective. On Wednesday, London equities were under pressure, with the benchmark FTSE 100 falling from its record closing high to trade around 7,930 points, dragged down by heavyweight materials and financials stocks.
After increasing by 10.5% the month prior and by a record-breaking 11.1% in October, the Consumer Price Index in UK increased by 10.1% from a year ago in January. The small slowdown to 10.3% was what economists had predicted. On a monthly basis, CPI fell by 0.6% in January 2023, compared with a fall of 0.1% in January 2022.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022.
The largest upward contributions to the annual CPIH inflation rate came from housing and household services (mainly from electricity, gas, and other fuels), and food and non-alcoholic beverages.
Also Read: US CPI data for January released, inflation falls less than market expectations
On a monthly basis, CPIH fell by 0.4% in January 2023, but was little changed in January 2022.
As oil prices decline and the economy enters a recession this year, BOE Governor Andrew Bailey expects inflation to decrease dramatically. The BOE is worried that a labour shortage is driving up wages and endangering an inflationary spiral, but this month’s statistics provide policy makers some wiggle room before deciding how to move the interest rate forward.
The decrease in January inflation numbers was mostly brought on by declining gasoline prices as well as reducing price pressures in cafes and restaurants. An increase in the price of tobacco and alcoholic beverages partially offset that.
Core inflation, excluding energy, food, alcohol and tobacco, fell to 5.3% in the 12 months to January 2023 from 5.8% seen in December.
On February 14, the US CPI report came in stronger than predicted, which increased predictions that the Federal Reserve would need to keep raising interest rates to reduce inflation. The annual inflation rate in the US decreased marginally to 6.4% in January from 6.5% in December, which was below market estimates of 6.2% but more than the lowest rate since October 2021.
Investors are likely to find the combination of longer-term inflation forecasts, higher valuations, and declining profitability to be a tough pill to swallow.