Inflation Falls To 3.4%

According to the Office for National Statistics (ONS), the UK's inflation rate has fallen to 3.4% vs 3.5% expected. This is the lowest annual rate of price rises in more than two years. The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 4.2% in the 12 months to January 2024.

What's Driving the Change?

The slower pace of food price rises helped push down inflation, along with soft drinks, restaurants, and hotels. However, this effect was partially offset by petrol prices and rental costs.

The Impact on Interest Rates

These latest inflation figures are particularly significant as they come just before the Bank of England's interest rate announcement. The Bank of England, which has a target rate of inflation of 2%, uses the latest figure when weighing up whether to raise or lower interest rates⁵.

The Political Response

The drop in inflation has sparked responses from both sides of the political spectrum. Chancellor Jeremy Hunt has stated that the figures show the government's plan is working. On the other hand, Labour's Rachel Reeves has called for an election, stating that the country cannot afford another five years of a Conservative government.

Looking Ahead

While the drop in inflation is certainly good news, it's important to remember that this doesn't mean the cost of living is falling. Instead, it means that prices are rising less quickly than they were before. As such, the impact on households will vary depending on their specific circumstances.

In conclusion, while the latest inflation figures provide some cause for optimism, they also highlight the ongoing challenges facing the UK economy. It will be interesting to see how these figures influence policy decisions in the coming months.

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