On a monthly basis, the Consumer Price Index (CPI) fell by 0.6% in January 2024, the same rate as a year ago.
The annual rate of food and non-alcoholic beverages dropped from 8% in December 2023 to 7% in January 2024 – the lowest annual rate since April 2022.
Monthly prices for food (excluding non-alcoholic beverages) also decreased by 0.4%. This marked the first fall in monthly prices since September 2021, and the largest fall since July 2021.
Chancellor Jeremy Hunt said: “Inflation never falls in a perfectly straight line, but the plan is working – we have made huge progress in bringing inflation down from 11%, and the Bank of England (BoE) forecast that it will fall to around 2% in a matter of months.”
As expected after the energy price cap rise, the largest upward contribution came from housing and household services, while the largest downward contribution came from furniture and household goods, food, and non-alcoholic beverages.
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Following the ONS data, industry experts cast their eye over the impact this will have on personal finances, investments, and mortgages ahead of the Monetary Policy Committee’s (MPC’s) base rate announcement next month.
‘Best news for households is falling food inflation’
Meanwhile, Hewson says that, despite the rise in energy prices “having us all rushing to take our meter readings whilst nursing a new year hangover”, the rate of inflation was less than many expected.
Hewson said: “The best news for all households came from falling food inflation, with prices actually coming down on a month-by-month basis for the first time in more than two years – a factor that helped offset other cost pressures.
Despite the dip in food prices on last month’s figures, the head of financial analysis at AJ Bell, Danni Hewson, warned shoppers not to get carried away as “in real terms, prices are still rising and many people are still struggling.”
Hewson added: “There might be a couple of plot twists, a little added suspense, but simple arithmetic suggests that inflation will continue to edge closer to the BoE’s 2% target as the year goes on.”
‘Broad direction of travel is encouraging’
Alpesh Paleja, CBI lead economist, shares the cautiously optimistic approach and believes it’s a matter of time before the MPC starts dropping the base rate.
Paleja said: “No movement in inflation over January is not entirely a surprise, due to base effects and a small rise in Ofgem’s energy price cap coming into effect. We may see a few more bumps in the road over the coming months, but the broad direction of travel with inflation is encouraging, having fallen considerably from its double-digit highs 15 months ago.”
“The BoE seems to share this view, though will want to see more definitive signs that domestic price pressures are continuing to soften. But with monetary policy now believed to be doing the trick, it’s increasingly a case of ‘when’ rather than ‘if’ interest rates will be cut”.
However, Kevin Brown, savings specialist at Scottish Friendly Assurance, is concerned the current 4% rate is “not merely sticky, but is here for the foreseeable future.”
‘Potential of recession’ is likely to cause problems for homeowners
Brown said: “The hope for many watchers of UK mortgage rates and the UK economy was that, while 2023 saw an inflationary spike, by the time 2024 rolled around, we would start to see the headline rate of inflation and core inflation dropping.
“However, January’s figures show that the UK’s uninvited economic guest is refusing to leave, and the concern now is whether the MPC will need to turn the heat up even higher in the shape of further rate rises to curb inflation. Mortgage borrowers and the wider UK economy will be hoping not, as higher mortgage repayments and the potential for a recession are both likely to cause problems for many families.
Brown added: “On the flip side, if rates stay higher in the short term, inflation-beating options for cash savers remain available, and many may still feel the attraction of easy access cash in times of economic uncertainty.”
“However, for UK households considering the best home for their money over the medium-to-long term, now might be a good time to consider investment options. Inflation will be tamed sooner or later, and when it is, the good cash deals currently available will start to get fewer and farther between. That could mean investing presents a good option to keep generating returns on your money.”
