The rate of inflation remained unchanged at four percent last month despite economists forecasting it would rise, the Office for National Statistics has said.
The ONS said food prices fell on a monthly basis for the first time since September 2021, and the largest downward push on inflation came from furniture and household goods.
However, inflation remains well above the Bank of England’s two percent target.
ONS chief economist Grant Fitzner said: “Inflation was unchanged in January, reflecting counteracting effects within the basket of goods and services.
“The price of gas and electricity rose at a higher rate than this time last year due to the increase in the energy price cap, while the cost of second-hand cars went up for the first time since May.
“Offsetting these, prices of furniture and household goods decreased by more than a year ago and food prices fell on the month for the first time in over two years.
“All of these factors combined resulted in no change to the headline rate this month.”
The annual rate of food and non-alcoholic beverages dropped from eight percent in December 2023 to seven percent in January 2024, which is the lowest annual rate since April 2022.
According to ONS, the fall to seven percent means the annual rate has eased for the tenth consecutive month. This follows a peak of 19.2 percent in March 2023, the highest annual rate in over 45 years.
Monthly prices for food and non-alcoholic beverages fell by 0.4 percent between December 2023 and January 2024, compared with a rise of 0.6 percent a year ago.
Monthly prices for food (excluding non-alcoholic beverages) also fell by 0.4 percent. This was the first fall in monthly prices since September 2021, and the largest fall since July 2021.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, commented: “Flat inflation may feel like a setback for household finances hoping for inflation to ease further but the price rises of today are still far more digestible than the dizzying high of 11.1 percent seen in October 2022.
“Plus, there was some good news for household budgets. Food inflation continued to retreat – edging down from eight percent in December – a reflection of supermarket price wars as major players ramp up loyalty scheme discounts to win market share.”
Some experts have raised concerns about whether the ongoing Red Sea crisis will have a negative impact on food prices in the coming months. Nick Saunders, CEO of Webull UK, said: “Inflation is coming down, but really not fast enough to expect early cuts to interest rates.
“A tight job market leaves the door open for wage increases to push inflation up in the coming months. The effects of Red Sea constriction have the potential to push up food prices, on top of a rise in the energy price cap. Making a cup of tea is a lot more expensive.”
However, he noted: “The pound today is four percent stronger against the dollar than this time last year; possibly this strength is bringing energy prices and flattering inflationary progress. While year-on-year inflation is trickling down, the month-on-month rate falling 0.6 percent is unexpectedly positive.
“The divergence was reflected in the split decision in the last MPC minutes; cutting rates in the short term would feel precipitous while Europe, the US and Canada keep theirs high, but it looks like inflation will be brought under control in time for an autumn election.”
Clare Batchelor, mortgage operations manager at Wesleyan Financial Services, echoed this sentiment, saying: “While today’s data could understandably cause some alarm, if we look at the underlying causes, then there is some room for optimism.
“The Energy Price Cap went up five percent in January, but it is expected to fall by as much as 16 percent in April, with another reduction forecast for the summer. With food inflation continuing to slow as well, we can expect positive news on inflation in the months ahead.”
