UK inflation rates: Official data revealed that British inflation unexpectedly remained unchanged at 4.0 per cent in January, defying expectations of a rise. This news comes as a relief for the Bank of England (BoE) and Prime Minister Rishi Sunak, particularly with a national election anticipated later this year.

Economists surveyed by Reuters had predicted an uptick in the annual rate to 4.2 per cent. Consumer price inflation, which had been higher in the UK than in other developed economies, is expected to decrease in the coming months. This could pave the way for the BoE to begin reducing borrowing costs from their 16-year high.

Pound weakens 

Following the release of the inflation data, the pound weakened against both the dollar and the euro. Investors are increasingly betting on the BoE cutting interest rates this year, with a roughly 72 per cent chance of the first reduction occurring in June, compared to only 40 per cent on Tuesday following a surprising increase in US inflation.

Martin Beck, chief economic advisor to the EY ITEM Club, stated, "Overall, the latest inflation data should reassure the Monetary Policy Committee that the time to start cutting interest rates is approaching."

Core inflation in the UK, which excludes volatile food, energy, alcohol, and tobacco prices, also remained unchanged at 5.1 per cent, according to the Office for National Statistics. Services inflation, a key indicator of domestic price pressures, rose to 6.5 per cent from 6.4 per cent in December but was not as strong as the BoE had anticipated.

The Bank is particularly concerned about rapid wage growth in the services sector, which could exacerbate inflationary pressures. However, data published on Tuesday showed that regular wages rose by an annual 6.2 per cent in the last quarter of 2023, the slowest increase in over a year but still double the pace considered sustainable for bringing inflation back to 2 per cent.

(with Reuters inputs)