UK Inflation At 4.1% In January: Pantheon Macroeconomics

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The UK will report another rise in inflation in January, says one of the country's most accurate forecasters.

Pantheon Macroeconomics says UK inflation will likely print at 4.1% year-on-year in January, up from December's 4.0%.

The rise will largely be due to base effects, i.e. a fall in some key components of the price basket in January 2023.

Pantheon Macroeconomics estimates the contribution of motor fuel CPI inflation to the headline rate likely increased by 0.10pp in January, as the month-to-month fall in prices was smaller than a year ago.

Furthermore, a base effect in services CPI inflation was likely boosted to about 6.9% in January from 6.4% in December.

A further rise in inflation will have resulted from the month-to-month rises in electricity and natural gas CPIs of 3.7% and 6.8%, respectively, due
to the increase in Ofgem’s default tariff cap.

But base effects aside, Pantheon Macroeconomics says the broader disinflation trend will continue in January, with food prices dragging.

The food component of the BRC's Shop Price Index rose by just 0.2% month-to-month in seasonally adjusted; Samuel Tombs, Chief UK Economist at Pantheon, says the BRC's data is useful as it has a strong track record of predicting developments in the official basket,

Image courtesy of Pantheon Macroeconomics.

Core goods CPI inflation is expected to have plunged to 2.3% y/y, from 3.1%
in December.

UK inflation is forecast by most economists to fall sharply by the time spring comes around, with April seeing another sharp fall in energy prices owing to the fall in wholesale gas prices in recent months.

The Bank of England's own forecasts show a return to the 2.0% target by April, but persistent inflationary pressures elsewhere in the price basket mean a rebound in CPI inflation over subsequent months.

The Bank sees UK inflation closer to 3.0% by year-end, making it reticent on the need to cut interest rates anytime soon.