UK inflation falls for third month in a row

Official figures show rate has fallen to 10.1 per cent

UK banknotes and coins. British Chancellor Jeremy Hunt welcomed the reduction in inflation but said 'the fight is far from over'. PA

UK inflation has fallen for the third month in a row, down to 10.1 per cent, according to the Office for National Statistics.

The Consumer Prices Index fell to 10.1 per cent in the 12 months to January, down from 10.5 per cent in December.

UK inflation hit a 41-year high of 11.1 per cent in October.

“Although still at a high level, inflation eased again in January,” said Grant Fitzner, chief economist for the ONS.

“This was driven by the price of air and coach travel dropping back after last month's steep rise. Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices.”

Meanwhile, the Consumer Prices Index, including owner occupiers' housing costs (CPIH), rose by 8.8 per cent in the 12 months to January, down from 9.2 per cent in December.

The CPIH figure includes mortgage payments, energy costs and food, which provided the largest upward contributions to the annual CPIH rate, the ONS said.

“Another fall in inflation over January suggests that the tide is turning on price pressures,” said Alpesh Paleja, CBI's lead economist.

“But with inflation and pipeline cost pressures set to remain high this year, households and businesses are likely to feel the pain for a while yet.”

'Fight is far from over'

“In particular, the continued strength in more domestic measures of inflation will keep alarm bells ringing at the Bank of England.”

UK Chancellor Jeremy Hunt welcomed the reduction but cautioned that “the fight is far from over”.

“High inflation strangles growth and causes pain for families and businesses. That's why we must stick to the plan to halve inflation this year, reduce debt and grow the economy,” he said.

Laura Suter, head of personal finance at AJ Bell said: "Small tweaks down in prices in some areas don’t stop the fact that many people are still seeing bills rise, with energy and food costs still increasing.

"It feels like a long journey from here to the Bank of England’s prediction of 3 per cent inflation in the first few months of 2024."

The transport sector was again one of the strongest contributors to the downward pressure on the inflation numbers, especially air fares.

Air fare annual inflation soared to 44.1 per cent in December, but more than halved to 18.4 per cent in January, figures from the ONS show.

Road transport fares, such as coach travel, also declined sharply, with inflation at 5.7 per cent, down from 11.3 per cent, while bus fares also eased, thanks largely to the £2 cap on single bus fares, which came into effect in England at the beginning of January.

Produce for sale in London. UK inflation hit a 41-year high of 11.1 per cent in October last year. Bloomberg

Food inflation remains strong, as food prices rose 16.8 per cent in the year through to January, easing slightly from 16.9 per cent in December.

The overall inflation numbers come a day after pay figures showed a rise in wages of 6.7 per cent in the final quarter of 2022. But in real terms, when inflation is applied, the pay figures showed a fall of 2.5 per cent.

As inflation eroded wages last year, Britain was gripped by a cost-of-living crisis, which sparked a wave of industrial action as workers from several sectors demanded pay increases.

The Bank of England expects a rapid fall inflation over the course of 2023, reaching four per cent by the end of the year. However, that would still be above the central bank's two per cent target.

Earlier this month, the Bank of England's Monetary Policy Committee increased interest rates for the tenth consecutive time to four per cent, in its continuing battle against inflation.

“The report was mixed and it was difficult to disentangle the wage and commodity price components in air fares, which were a drag on inflation, and food prices, which supported it,” said Guy Foster, chief strategist at wealth manager RBC Brewin Dolphin.

“Despite some good news from a slowdown in core goods and services inflation, there probably isn’t enough compelling evidence to suggest to the MPC that inflation is back under control,” he added.

Inflation has peaked across the developed world but remains higher than average in the UK. Inflation in Germany is 9.2 per cent, seven per cent in France and 6.4 per cent in the US.