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The Bank of England. Chancellor of the Exchequer Jeremy Hunt welcomed the dip in inflation but said the government will work towards cutting inflation in half this year. Image Credit: Bloomberg

The UK’s inflation rate fell for a third month, remaining stubbornly in double digits five times above the Bank of England’s targeted level.

The Consumer Prices Index rose 10.1 per cent from a year ago in January, down from 10.5 per cent the month before and a 41-year high of 11.1 per cent in October. Economists had expected a slight slowdown to 10.3 per cent.

BOE Governor Andrew Bailey hopes that inflation will fall sharply this year as energy prices ease and the economy tips into recession. While the BOE is concerned that a shortage of workers is pushing up wages and threatening an inflationary spiral, this month’s figures give policy makers room to wait before considering the next move on rates.

“Falling inflation may not be enough to change the course of monetary policy,” said Yael Selfin, chief economist at KPMG UK. “Continuing strong wage pressures add to the risk that inflation becomes more entrenched and persistent, making the bank more reluctant to pivot to a new strategy.”

The pound extended a decline following the release, dropping as much as 0.7 per cent on the day to $1.2086.

Chancellor of the Exchequer Jeremy Hunt welcomed the dip but said the government will work towards cutting inflation in half this year.

“While any fall in inflation is welcome, the fight is far from over,” Hunt said in a statement. “High inflation strangles growth and causes pain for families and businesses.”

The decline in the latest month was largely due to falling petrol prices along with easing price pressures in restaurants and cafes. That was partly offset by a jump in the cost of alcoholic beverages and tobacco. Air and coach travel costs fell back after a steep rise in December.

“The cost of furniture decreased by more than this time last year, in line with traditional New Year discounting,” ONS Chief Economist Grant Fitzner said. “There are further indications that costs facing businesses are rising more slowly, driven by falls in crude oil, electricity and petroleum prices. However, business prices remain high overall, particularly steel and food products.”

Core inflation, excluding energy, food, alcohol and tobacco, fell to 5.3 per cent in the 12 months to January 2023 from 5.8 per cent. Inflation in the services sector, which is closely watched by the BOE, slowed to 6 per cent from 6.8 per cent. Food costs jumped 16.8 percent, holding at a record high.