UK January CPI rises unexpectedly to 3% year-on-year

The UK's January consumer prices rose more than expected, recording a 3% increase year-on-year.

On the 19th (local time), the UK's Office for National Statistics (ONS) announced that the Consumer Price Index (CPI) rose 3% year-on-year in January. This exceeded economists' expectations of 2.8% and marked the highest level since March last year.

Core inflation, excluding volatile energy, food, alcohol, and tobacco prices, rose 3.7% year-on-year in January, the highest figure since April 2024. Core services prices increased significantly by 5% year-on-year.

After the inflation data was released, the British pound traded at $1.2615 per pound against the dollar, showing little change.

While UK consumer prices recorded their lowest level in three years at 1.7% last September, monthly prices have risen since then as fuel costs increased and service fees rose faster than inflation.

The Bank of England lowered its base rate to 4.5% in January as inflation recently slowed. While the Bank of England has signaled further rate cuts, conditions are not easy. This is because headline inflation is forecast to rise to 3.7% in the third quarter of this year.

ONS Chief Economist Grant Fitzner said, "Airfare increases during the Christmas and New Year period had a significant impact due to rising oil prices."

Ruth Gregory, UK Deputy Chief Economist at Capital Economics, said, "While higher energy prices have pushed CPI above 3%, we still expect it to fall below 2% in 2026." She pointed out that "the risk is that rates may fall less or later than expected if inflation continues to rise."

Jung-ah Kim, Contributing Writer kja@hankyung.com