The rate of price rises in the UK dropped slightly in January driven by the lower cost of transport, however inflation still remains close to all-time highs.
The consumer prices index was 10.1 per cent in January according to the Office for National Statistics, a six-month low and 0.2 percentage points below economists’ expectations.
This is below January’s rate of 10.5 per cent and the recent high of 11.1 per cent in October.
The retail prices index, which measures the changes in retail prices of a basket of goods and services, as opposed to the weighted average prices tracked by the CPI, was 13.4 per cent.
The largest drop in January came from the transport sector, particularly the cost of fuel, and restaurants and hotels, however the rate was pushed up by the rising price of alcohol and tobacco.
The balance of risks on the economy points to a cautious stanceHussain Mehdi, HSBC Asset MangementChief economist at the ONS, Grant Fitzner, said: “There are further indications that costs facing businesses are rising more slowly, driven by falls in crude oil, electricity and petroleum prices.
“However, business prices remain high overall, particularly for steel and food products.”
The data shows UK inflation has peaked, said Daniel Casali, chief investment strategist at Evelyn Partners, and will continue to do so as wholesale natural gas and fuel prices fall.
“Importantly, surveys of inflation expectations have also come down from peaks,” he said.
However, rising wages will mean the Bank of England is likely to raise interest rates again next month, said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
“We think restrictive policy settings will tip major developed market economies into fairly significant GDP and profits recessions in 2023.”
But markets have not yet fully absorbed this expectation, he added.
“Markets continue to trade a Goldilocks outcome of soft landing and 'immaculate disinflation' driven by rapid improvements in the supply-side of the economy.
“Although this is not impossible, with a lot of good news now priced in, the balance of risks on the economy points to a cautious stance on developed market equities over the near-term.”
sally.hickey@ft.com
