UK inflation falls for third month in a row to 10.1% as air fares and petrol costs come down

UK inflation has fallen slightly for the third month in a row to 10.1% in January, new figures show.

The Office for National Statistics (ONS) revealed Consumer Prices Index (CPI) inflation dropped sharply from 10.5% in December in a bigger fall than economists had predicted.

The decline from 10.5% in the previou month marks a further welcome drop from the eye-watering peak of 11.1% seen last October, caused by soaring energy prices.

The ONS said falls in air fares and petrol costs helped to slow rises in the cost of living in January, but with inflation still firmly in double digits, households are yet to feel the pressure lift. Air fare annual inflation soared to 44.1% in December, but more than halved to 18.4% in January, with air tickets seeing the largest fall, the figures show.

Motor fuel prices helped further slow the pace of inflation, with average petrol prices falling 5.9p a litre between December and January to stand at 149.4p per litre last month – the lowest since February 2022.

Road transport fares such as coach travel also dropped sharply, with inflation at 5.7% down from 11.3%, and bus fares also eased, thanks largely to the £2 cap on single bus fares, which came into effect in England from 1 January. The ONS said food prices remained close to 45-year highs, at 16.7% in January, only slightly lower than the 16.8% hit in December.

Grant Fitzner, chief economist for the ONS, said: “Although still at a high level, inflation eased again in January. This was driven by the price of air and coach travel dropping back after last month’s steep rise. Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices.”

He added: “The cost of furniture decreased by more than this time last year, in line with traditional New Year discounting. These were offset by rising prices for alcohol and tobacco, following on from seasonal price cuts in December and a more subdued rise at the same time last year.”

Inflation battle ‘far from over’

Responding to the ONS figures, Chancellor Jeremy Hunt said the battle to reduce inflation is “far from over” as it still remains in double figures.

He said: “While any fall in inflation is welcome, the fight is far from over. High inflation strangles growth and causes pain for families and businesses – that’s why we must stick to the plan to halve inflation this year, reduce debt and grow the economy.”

Shadow chancellor Rachel Reeves said families would feel no better off following 13 years of Conservative government and repeated Labour’s call for a windfall tax on oil and gas companies to ease bills.

She said: “With inflation still close to a 40-year high, people will be asking if 13 years of Tory government has left them and their family feeling better off? The answer will be no. Despite Britain’s enormous potential, in April households will be hit by another economic blow when energy prices go up.

“Labour would be bringing in a proper windfall tax on oil and gas giants now to stop energy bills going up in April. Our long-term plan to sprint to clean power and insulate 19 million homes will keep bills low for the future too, and get our economy growing.”

Meanwhile, the Bank of England has said it believes CPI will fall sharply this year, with governor Andrew Bailey recently saying there has been a “turning of the corner” on inflation. This is due to falling fuel prices and as supply chain difficulties have eased, while wholesale energy prices have also dropped significantly since the painful costs seen last year.

The Bank is forecasting inflation to fall to around 4% towards the end of this year. It raised interest rates from 3.5% to 4% in February and there has been speculation that may have been the last hike due to the lower inflation outlook.

But there may be pressure on the Bank to raise interest rates again in March after official figures on Tuesday (14 February) showed regular wages rising by 6.7% in the three months to December – a new record outside the pandemic and a worrying sign that inflation may prove stubborn.

The latest data also showed a decline in the CPI including housing costs (CPIH) measure of inflation recorded by the ONS, down to 8.8% from 9.2% in December. The Retail Prices Index (RPI) remained unchanged at 13.4% in January.