Inflation remains flat – but food prices begin to fall

ONS figures out this morning show that inflation – the rate that which prices are rising – remained the same as last month at 4%. 

Last month's figures surprised economists with inflation rising to 4%, up slightly up from 3.9%. It was the first increase since February 2023.

The figures show food prices fell in January for the first time since September 2021, which will help ease the squeeze on household budgets.

But this fall was offset by rising gas and electricity costs.

Grant Fitzner, chief economist at ONS, said: “Inflation was unchanged in January reflecting counteracting effects within the basket of goods and services.

“The price of gas and electricity rose at a higher rate than this time last year due to the increase in the energy price cap, while the cost of second-hand cars went up for the first time since May.

Energy prices rose from 1 January to £1,928, resulting in a £94 rise in bills for the average family home.

Ofgem will review the price cap on 23 January for the period from 1 April to 30 June and it’s widely predicted that prices will begin to fall.

Inflation remaining stubborn will be troubling for the Bank of England who will review interest rates when it next meets on 21 March.

Interest rates remained unchanged at 5.25% in February. And, with 2.4 million fixed rate mortgages due to come to an end in 2024, homeowners hoping for a drop in interest rates could be disappointed.

What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.

What it means for your household budget

Higher inflation means the cost of everyday essentials such as food, energy and fuel are rising.

The Bank of England bases its interest rate on inflation figures. It increases interest rates to help cool or reduce inflation and keeps them low when inflation is low.

The Bank of England paused interest rate rises when it met in December after 14 consecutive hikes, with the rate being held at 5.25%, the highest it has been since February 2008.

High interest rates is good news for savers but bad for homeowners who have seen their mortgages increase by more than £400.