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UK inflation holds steady at 4% as services remain pressure source

The inflation in the United Kingdom remained steady at an annual rate of 4.0% in January, the official data showed on Wednesday as the services sector continued to exhibit pressure on the economy, but the steady figure comes as a relief for the Bank of England (BoE) that kept interest rates unchanged at last four meetings.

The consumer price index (CPI), double the Bank of England’s official target level, came in unchanged from December level, the Office for National Statistics (ONS) said.

Economists polled by Reuters had forecast an increase of 4.2%. Inflation is expected to fall further in the coming months.

Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, was also unchanged at 5.1%.

But services inflation – an indicator of domestic price pressures that is closely watched by the BoE as it considers when to start cutting interest rates – rose to 6.5% from 6.4% in December.

The BoE fears rapid wage growth – which makes up much of the inflation rate in the services sector – could add more inflationary pressure across the economy.

Data published on Tuesday showed regular wages rose by an annual 6.2% in the last three months of 2023, the slowest increase in over a year but about double the pace the BoE views as consistent with getting inflation back sustainably to 2%.

“Inflation never falls in a perfect straight line, but the plan is working, we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months,” British finance minister Jeremy Hunt said.

Prices for food and nonalcoholic drinks were 6.9% higher in January than a year earlier, down from December’s 8.0% rise.

Sterling weakened against the dollar and the euro immediately after the inflation data was published.

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