UK's Stable Inflation Raises Hopes Of Rate Cut

(RTTNews) - UK consumer price inflation remained stable unexpectedly in January raising hopes of an interest rate cut from the Bank of England as early as June.

Data from the Office for National Statistics published on Wednesday revealed that the consumer price index, or CPI, advanced 4.0 percent on a yearly basis, the same rate as seen in December.

Inflation was forecast to climb to 4.1 percent.

Month-on-month, the CPI fell 0.6 percent, in contrast to the 0.4 percent increase in the previous month. Economists had forecast a 0.3 percent drop.

Core inflation that strips out price of energy, food, alcohol and tobacco held steady at 5.1 percent in January. The core rate was seen at 5.2 percent.

At the February meeting, the Bank of England had kept the monetary policy unchanged for the fourth straight session at a 15-year high in February.

The BoE had projected inflation to fall temporarily to the 2 percent target in the three months to June before rising again in the next two quarters.

Capital Economics economist Paul Dales said inflation is likely to fall sharply in the coming months and will be back below the 2.0 percent target in April.

The economist expects the BoE to cut rates this summer, perhaps in June, and reduce rates all the way to 3.00 percent next year.

Markets are currently pricing in rates to end the next year at 4.00 percent.

Data showed that the largest upward contribution to the monthly inflation came from housing and household services, while furniture and household goods and food and non-alcoholic beverages provided the largest downward contribution.

Another data from the ONS showed that input price inflation has been negative for the eighth straight month and also hit the lowest since May 2020.

Input prices posted an annual fall of 3.3 percent annually in January, worse than December's 2.1 percent decrease and economists' forecast of 3.0 percent fall.

At the same time, output prices slid 0.6 percent annually, reversing a 0.1 percent rise in December. Economists had forecast a decline of 0.5 percent.

On a monthly basis, the decline in input prices doubled to 0.8 percent from 0.4 percent. And output prices fell 0.2 percent following a 0.5 percent decrease.

Another report from the ONS showed that the annual fall in house prices slowed to 1.4 percent in December from 2.3 percent in the previous month.

The average house price was GBP 285,000 in December.