Price rises ease but inflation still near 40-year high

Price rises in the UK have slowed for a third month in a row but inflation remains close to a 40-year high, according to the latest official figures released today.

Inflation edged down to 10.1 per cent in the year to January from 10.5 per cent in December.

The Office for National Statistics explains the fall is mainly due to the price of fuel and cost of restaurants and hotels easing.

But it added this drop was offset by rising prices of alcohol and tobacco. And food inflation also remained stubbornly high in January – at 16.7 per cent.

James Bentley, director of Financial Markets Online, said: “Britain is not out of the inflationary woods yet. Despite the gradual fall in fuel prices, inflationary pressure elsewhere has been frustratingly slow to ease.

“With wages rising at the fastest rate in two decades and the weak Pound continuing to make imported goods expensive, pessimists are still questioning whether inflation has become baked into the UK economy.

“At the very least it’s proving sticky. While this third successive fall in the UK’s headline rate of CPI is a step in the right direction, progress is painfully slow.

“The Bank of England’s two per cent target still looks like a mirage on the horizon, so no-one should expect the Bank’s rate setting committee to ease off on monetary tightening any time soon.

“Hopes that interest rate rises could soon be done with have taken a knock with today’s double-digit CPI reading. Britain’s stagnating economy may have to endure further big jumps in the cost of borrowing until it’s clear that inflation is genuinely under control, because on today’s evidence, it’s not.”

Alan Thomas, chief executive of Simply Business, one of the UK’s largest providers of small business insurance, said “Naturally, the fall in inflation rates and recent news that the UK has avoided a recession is welcome, but we cannot rest on our laurels when it comes to supporting the UK’s 5.5 million small businesses.

“There continue to be a number of elements at play which are disproportionately harming the SME community. Our research indicates that 65 per cent of SME owners see rising costs as their biggest challenge, almost a quarter are concerned by supply and material shortages caused by ongoing geo-political unrest, and many are resultantly being forced to implement price increases, slow their plans for expansion, and even stop hiring.

“Our research also shows that a quarter of SME owners are worried that they, quite candidly, will not be able to pay their bills this year. If that concern materialises, then we will be in seriously dangerous waters.

“The Prime Minister set out as a priority for the government to halve inflation, which was welcomed by many. However, inflation is still at the highest level that we have seen in years, and many small businesses do not have the luxury of waiting another six months for things to stabilise.”