Inflation eases to 10.1% in third consecutive month drop

UK inflation has eased back for the third straight month to 10.1% in January as lower air fares and fuel costs helped slow rises in the cost of living, according to official figures.

The Office for National Statistics (ONS) revealed Consumer Prices Index (CPI) inflation dropped sharply from 10.5% in December in a bigger-than-expected fall. Most economists had been expecting a drop to 10.3% last month.

It marks a further welcome decline from the eye-watering peak of 11.1% seen last October, caused by soaring energy prices. But with inflation still firmly in double digits, households are yet to feel the pressure lift.

Chancellor Jeremy Hunt said the battle to reduce inflation is “far from over”. He said: “High inflation strangles growth and causes pain for families and businesses – that’s why we must stick to the plan to halve inflation this year, reduce debt and grow the economy.”

Grant Fitzner, Chief Economist for the ONS, said: “Although still at a high level, inflation eased again in January. This was driven by the price of air and coach travel dropping back after last month’s steep rise.”

The Bank of England has said it believes CPI will fall sharply this year, with Governor Andrew Bailey recently saying there has been a “turning of the corner” on inflation. This is due to falling fuel prices and as supply chain difficulties have eased, whilst wholesale energy prices have also dropped significantly since the painful costs seen last year.

The Bank is forecasting inflation to fall to around 4% towards the end of this year. It raised interest rates from 3.5% to 4% in February and there has been speculation that may have been the last hike due to the lower inflation outlook.

But there may be pressure on the Bank to raise interest rates again in March after official figures on Tuesday showed regular wages rising by 6.7% in the three months to December – a new record outside the pandemic and a worrying sign that inflation may prove stubborn.

The Retail Prices Index (RPI) remained unchanged at 13.4% in January.