UK inflation holds steady at 4%, lower than expected

LONDON — U.K. inflation held steady at 4% year-on-year in January, below expectations for a slight increase, on the back of easing food and non-alcoholic beverage prices.

Month-on-month, the headline consumer price index fell to -0.6%, returning to negative territory after December's surprise increase by 0.4% on the month and 4% annually.

Economists polled by Reuters had produced a consensus forecast of 4.2% year-on-year for January and -0.3% for the month.

"The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from alcohol and tobacco while the largest downward contribution came from food and non-alcoholic beverages," the Office for National Statistics said Wednesday.

The closely watched core CPI figure — which excludes volatile food, energy, alcohol and tobacco prices — came in at an annual 5.1%, below a consensus estimate of 5.2%.

The U.K. has lagged its peers in bringing down inflation, but the headline CPI has been on a general downward trajectory since the October 2022 peak of 11.1% year-on-year.

The British economy has so far managed to avoid a recession in the face of rapid interest rate hikes from the Bank of England, as it sought to temper inflation. The labor market and wage growth have meanwhile eased but will remain uncomfortably robust for a central bank aiming to drag inflation back to its 2% target.

However, the economy is expected to have entered a slight technical recession in the fourth quarter, with preliminary estimates due out on Thursday morning.