UK Inflation Surges to 10-Month High

Inflation in the United Kingdom accelerated significantly in January, reaching its highest level in ten months.

The increase was primarily driven by rising costs in airfare, fuel, and food, along with the introduction of a value-added tax on private school tuition fees.

Consumer prices rose by 3 percent year-on-year, up from 2.5 percent in December, according to the Office for National Statistics.

The figures exceeded forecasts from Bloomberg News and the Bank of England’s estimate of 2.8 percent.

The latest inflation data is likely to reinforce the Bank of England’s cautious stance on cutting interest rates to support the struggling economy.

While policymakers have downplayed the risks of rising inflation, concerns persist about sustained inflationary pressures.

The Bank of England projects inflation will peak at 3.7 percent in the third quarter, largely due to increasing energy costs and new charges for household utilities.

Following the report, the British pound weakened, trading at 1.2616 against the US dollar.

Higher inflation reduces the likelihood of an interest rate cut in March. Economists have described the inflation surge as an unwelcome development, with the rise in airfare prices and private school tax changes significantly widening the gap from the central bank’s 2 percent target.

The service sector, closely monitored for domestic price pressures, experienced an acceleration in inflation from 4.4 percent to 5 percent in January.

The new 20 percent value-added tax on private school tuition contributed to the increase, pushing education inflation to 7.5 percent, its highest level in nearly a decade. Food prices also climbed, rising from 1.9 percent to 3.1 percent.

Core inflation, which excludes volatile items like energy and food, increased from 3.2 percent to 3.7 percent, marking the highest level since April. The figure aligned with expert forecasts in a Reuters survey.

Despite real wage growth, millions of households continue to struggle with the rising cost of living. The issue remains a pressing concern for the Labour government, which has faced a sharp decline in public support since taking office in July.

The Treasury introduced over £40 billion in tax hikes in its October budget, increasing financial pressure on businesses and families.

Earlier this month, the Bank of England implemented its third interest rate cut since August but warned that any further reductions would be gradual and cautious. Financial markets are currently pricing in only two additional rate cuts this year, bringing interest rates down to 4 percent.