UK inflation continues to ease

Date : 15 February 2023

ONS has issued new data, showing that UK inflation continued to ease in January 2023, although the cost of living still greatly outpaces income growth for most households.

Data from ONS shows that inflation in the UK continues to weaken. Using the CPI method, year-on-year “all items” inflation peaked in October 2022 at +11.1% and has since declined, reaching +10.1% in January 2023.

This is still very high, however – looking to historic data, the last time the UK CPI hit this level was in early 1980.

Average pay continues to grow strongly - up 4.5% in the most recent month – but this still falls short of living costs, suggesting that workers are becoming significantly worse-off in “real terms”.

Forecasts from the Bank of England suggest that this inflation “wave” has now peaked and that inflation will fall back towards the 2% target rate over 2023 and 2024, although strategic uncertainty is high.

Year-on-year inflation for food and drink in January was +16.7%, down fractionally from +16.8% in December. This is broadly in-line with IGD’s latest predictions, issued in November.

The wider RPI measure of inflation also shows that inflation peaked in late 2022, but it also reveals a growing contribution to inflation from housing costs, driven by rising interest rates. Inflation in January on the RPI measure was unchanged from the previous month at 13.4%.

Hopefully, falling inflation will reduce the need for further interest rate change but, historic changes will likely continue to take effect as mortgagors exit fixed-rate deals. The fixing of income tax thresholds will also impact household finances in long run.

In the short-term consumers will welcome signs that inflation is easing, but inflation is likely to remain high through most of 2023, meaning continued pressure on living standards.

Food businesses should be alert to any divergence in inflation between food and other essentials – if food inflation runs ahead of other items, this may undermine trust in the industry.

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