In January, despite rising energy costs, Britain’s yearly inflation rate held steady at 4%. This indicates that the ongoing cost of living crisis continues to impact the economy.
The Office for National Statistics (ONS) reported that inflation, measured by the consumer prices index, went against expectations and did not increase in January. This was due to the first decrease in food prices in over two years, which balanced out the increase in gas and electricity expenses.
Last month, the Bank of England forecasted a slight increase in inflation due to the Ofgem energy price cap hike for households in Great Britain. Economists surveyed by Reuters predicted a rise to 4.2%.
In January, there was a decrease of 0.4% in the prices of food and non-alcoholic drinks compared to the previous month. This is the first time there has been a decrease since May 2021, and it was mainly due to lower prices for items such as bread, cereals, cream crackers, sponge cake, and chocolate biscuits.
Despite a challenging holiday season for retailers in the UK due to low consumer spending, prices for furniture experienced their largest monthly decline in four years. This was driven by significant discounts on items such as kitchens, leather sofas, and dining sets.
The recent report on living expenses exceeding expectations is expected to lead to a decrease in inflation, bringing it closer to the government’s goal of 2% in the upcoming season.
In July 2021, inflation was recorded at 2%. However, it reached a high point of 11.1% in October 2022 before beginning to decrease.
The statement from Jeremy Hunt, the chancellor, stated that while inflation may not decrease in a perfectly linear manner, their plan has been successful. Significant strides have been made in reducing inflation from 11%, and the Bank of England predicts it will continue to drop to approximately 2% in the near future.
From December 2021 to August 2023, the monetary policy committee of Threadneedle Street increased interest rates 14 times in an effort to alleviate inflationary pressures. The financial sector anticipates that this decrease in inflation will lead to a reduction in borrowing expenses later this year.
The Bank has stated that it must ensure inflation stays at its 2% target for the long term. It cautioned that wage increases and service sector prices could potentially cause inflation to become a persistent issue.
The most recent data from the Office for National Statistics shows that core inflation, which does not include energy, food, alcohol, and tobacco and is closely monitored by the Bank, stayed the same at 5.1%. In January, services inflation increased to 6.5%, rising from 6.4% the previous month.
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Despite a decrease in inflation compared to last year, the cost of necessary items and services remains elevated, placing additional strain on households during the current affordability crisis.
According to the ONS, while food prices decreased in January, they have risen by 25% in the last two years, which is more than twice the rate of the previous decade.
The shadow chancellor, Rachel Reeves, stated that working individuals are experiencing a decline in their financial situation after 14 years of economic struggles. The cost of goods in stores continues to increase, resulting in the average household’s expenses rising by £110 per week since the previous election.
The rate of inflation remains above the goal set by the Bank of England, causing numerous households to face challenges in affording basic necessities.
Source: theguardian.com
