UK inflation rate unexpectedly holds in January in relief for BoE By Reuters

LONDON (Reuters) -British consumer price inflation unexpectedly held steady at an annual rate of 4.0% in January, unchanged from December, the Office for National Statistics said on Wednesday in a boost for the Bank of England.

Economists polled by Reuters had forecast an increase to 4.2%. Inflation is expected to fall further in the coming months.

Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, was also unchanged at 5.1%.

But services inflation – an indicator of domestic price pressures which is closely watched by the BoE as it considers when to start cutting interest rates – rose to 6.5% from 6.4% in December.

The BoE fears rapid wage growth – which makes up much of the inflation rate in the services sector – could add more inflationary pressure across the economy.

Data published on Tuesday showed regular wages rose by an annual 6.2% in the last three months of 2023, the slowest increase in over a year but about double the pace the BoE views as consistent with getting inflation back sustainably to 2%.

“Inflation never falls in a perfect straight line, but the plan is working, we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months,” British finance minister Jeremy Hunt said.

Prices for food and non-alcoholic drinks were 6.9% higher in January than a year earlier, down from December’s 8.0% rise.

Sterling weakened against the dollar and the euro immediately after the inflation data was published.

Wednesday’s stable British inflation data followed a higher-than-expected increase in price growth in the United States announced on Tuesday.