UK Inflation Falls But Remains High

The UK’s annual inflation rate slid for a third month in a row, with January’s figure relieving pressure on the Bank of England (BOE) to raise interest rates, even though inflation remains in double digits and is close to the highest it has been in four decades.

Annual inflation dropped to 10.1%, marking a continued decline from 10.5% in December and its peak of 11.1% in October. The fall was driven by a continued drop in gas and diesel prices, as well as the price of air and coach travel falling back after a sharp rise in December.

The latest inflation reading comes as the BOE considers whether further rate hikes are warranted to tackle inflation, a move that would heap further pressure on consumers after 10 successive rate rises in the past year and a half.

UK inflation remains higher than in the US or the eurozone, and some forecasters have said the UK’s acute worker shortages and other constraints on the economy, such as Brexit, could add to inflationary pressures. 

Analysts believe weaker inflation could ease pressure on the BOE to raise interest rates above the current rate of 4%. Services inflation, which is watched closely by the BOE, fell back from 6.8% in December to 6% in January. 

Central banks monitor this figure for signs that rising workers’ pay is leading to companies pushing up their prices. Many economists feel service inflation has peaked, which will allow the BOE to slow its interest rate hikes.