Inflation in Britain looked different compared to the U.S. with the figure remaining steady at 4.0% in January, defying forecasts of a rise among economists, based on official data released. This gives some relief to the Bank of England (BoE) and also Prime Minister Rishi Sunak ahead of the national elections expected to be held this year.
Economists interviewed by Reuters had expected the annual rate to increase to 4.2%. Consumer price inflation, which peaked at 11.1% in October 2022, is expected to fall further in the coming months, opening the way for the BoE to start reducing borrowing costs from a 16-year high.
Sterling traded lower against the US dollar and euro after inflation data was published.
Investors increased their expectations of an interest rate cut by the BoE this year, indicating a probability of around 72% for the first reduction in June, compared with just 40% on Tuesday after a surprise jump in US inflation.
"Overall, the latest inflation data should give confidence to the Monetary Policy Committee that the time to start cutting interest rates is drawing near," said Martin Beck, chief economic adviser to the EY ITEM Club.
The acting Governor of the Bank of England, Andrew Bailey, is scheduled to address members of the British Parliament at 10pm on Wednesday.
Britain's core inflation, which excludes volatile food, energy, alcohol and tobacco prices, also remained unchanged at 5.1%, the Office for National Statistics reported. Services inflation, an indicator of domestic price pressures, rose to 6.5% from 6.4% in December but was not as strong as the BoE had expected.
Britain's central bank is concerned that rapid wage growth, which makes up the bulk of inflation in the services sector where it is seen, could add to inflationary pressures across the economy.
Monetary Policy Committee member Jonathan Haskel was one of two policymakers who voted to raise interest rates at the BoE's latest meeting. Samuel Tombs, an economist with Pantheon Macroeconomics, expected on Wednesday that a measure of basic services prices that the BoE closely monitors rose modestly by 1.2% on a monthly basis.
High inflation has affected the standard of living of households in Britain in the past few years, contributing to the electoral challenges that Sunak has to face.
