UK inflation surged to 3% in January – its highest level in 10 months – intensifying scrutiny on the Bank of England to balance rate cuts against persistent price pressures. New data from the Office for National Statistics reveals consumer prices rose faster than the projected 2.8%, driven by steep hikes in airfares, food costs, and private school fees following Labour's sales tax reforms.
The unexpected spike complicates the central bank’s efforts to stimulate critically low economic growth. Earlier this month, policymakers reduced interest rates to 4.50% and slashed 2025 GDP forecasts to 0.75%.
Another rate cut in March looks pretty unlikely, with the bank continuing its gradual pace of easing for now,stated Luke Bartholomew, deputy chief economist at abrdn. He emphasized future cuts hinge on inflation nearing the 2% target.
Analysts attribute January’s surge to volatile seasonal factors but warn domestic energy price hikes could sustain inflationary pressures until mid-2024. For Prime Minister Keir Starmer’s Labour government – which faces plummeting approval ratings – the stagnation-growth paradox grows dire. The party’s flagship economic revival plan risks unraveling without cheaper mortgages or business loans from aggressive rate reductions.
Consumers face a tightening squeeze: wage growth lags behind inflation, while saver returns dwindle. With public services like healthcare and education grappling for funding, the Bank’s next moves will shape both political and financial landscapes. Most economists now anticipate 1-2 rate cuts in late 2024, down from earlier projections of four.
