UK inflation rate unchanged at 4% in January

A drop in food prices was cancelled out by rising gas and electricity costs to keep inflation flat. Getty Images

The UK’s inflation rate held steady at 4 per cent in January, defying predictions it would nudge back upwards.

Food prices fell for the first time since September 2021, although they are still 7 per cent higher than a year ago.

Gas and electricity prices rose at a faster rate than a year ago, leaving the Consumer Price Index flat overall, with the effect of the Red Sea shipping crisis appearing to be limited.

Economists had predicted a rise to 4.2 per cent.

However, the inflation rate remains double the Bank of England’s 2 per cent target and is being closely watched in an election year.

“Inflation never falls in a perfect straight line, but the plan is working,” said Chancellor of the Exchequer Jeremy Hunt.

“We have made huge progress in bringing inflation down from 11 per cent and the Bank of England forecast that it will fall to around 2 per cent in a matter of months.”

Labour said millions of families were still struggling with the cost of living after what it called “14 years of economic failure” under the Conservatives.

“The Conservatives cannot fix the economy because they are the reason it is broken,” said shadow chancellor Rachel Reeves.

The 0.4 per cent drop in food prices was mainly driven by bread and cereals, with noticeable falls in the price of cream crackers and chocolate biscuits.

Gas, electricity, motor fuels and second-hand cars were among the rising costs cancelling out the drop in food prices.

Boudewijn Driedonks of consultants McKinsey said the “opposing pressures” on inflation could lead to an unsteady rate during 2024.

The impact from Red Sea trade disruptions “prove relatively limited” in the figures, with shipping costs making up only a minor portion of costs in most sectors, he said.

“Although the UK is still at very high absolute price levels compared with 2021, prices for now seem to be stabilising,” he said.