UK Inflation holds at 4.0% in January, Falling Short of Forecasts

Highlights

• The UK inflation rate held steady at 4.0% in January.
• Consumer prices declined by 0.6% month-on-month.
• The UK CPI figures may enable the Bank of England to begin discussions about interest rate cuts.

UK Consumer Price Inflation Report for January 2024

On Wednesday, UK inflation numbers for January warranted investor attention. Hotter-than-expected inflation numbers could delay the timeline for a Bank of England interest rate cut.

However, the UK annual inflation rate remained at 4.0% in January. Economists forecast an inflation rate of 4.2%. Core inflation remained unchanged at 5.1%. Economists predicted a core inflation rate of 5.2%.

Month-on-month, consumer prices declined by 0.6% after rising by 0.4% in December. Economists forecast a 0.3% fall in consumer prices.

According to the Office for National Statistics,

The Consumer Prices Index, including owner-occupier housing costs (CPIH), increased by 4.2% year-over-year in January. (Dec: +4.2%).

• Alcohol and tobacco prices had the largest contribution to inflation.
• Prices for alcohol and tobacco rose by 12.2% in the 12 months to January (Dec: +12.8%).
• In contrast, food and non-alcoholic beverages, household goods, and furniture had the most marked downward contribution.
• Food and non-alcoholic beverage prices increased by 7.0% in the 12 months to January (Dec: +8.0%).
• Prices for furniture and household goods increased by 0.5% in the 12 months to January (Dec: +2.5%).

The Consumer Prices Index, including owner-occupier housing costs (CPIH), fell by 0.4% month-on-month in January. (Dec: -0.4%).

• Month-on-month, clothing and footwear prices fell by 3.9% (Dec: -3.1%).
• Prices for food and non-alcoholic beverages declined by 0.4% month-on-month (Dec: +0.6%).
• Furniture and household goods prices slid by 3.1% month-on-month (Dec: -1.1%).

Bank of England Monetary Policy Implications

The UK inflation figures followed better-than-expected UK labor market data that reduced bets on an H1 2024 BoE rate cut. The larger-than-expected fall in consumer prices month-on-month could prompt discussions at the Bank of England about interest rate cuts.

GBP/USD Reaction to the UK Inflation Report

Before the UK inflation report, the GBP/USD fell to a low of $1.25837 before reaching a high of $1.26095.

However, following the inflation report, the GBP/USD rose to a high of $1.26050 before declining to a low of $1.25557.

On Wednesday, the GBP/USD was down 0.10% to $1.25798.

Up Next: Fed Speakers

On Wednesday, investors must monitor Fed speeches following the hotter-than-expected US CPI Report. Reactions to the US inflation numbers and views on the impact on the Fed rate path could move the dial.

FOMC member Austan Goolsbee is on the calendar to speak.