How fast are prices rising in the UK?

Prices in the UK are no longer rising as fast as wages, official figures show. However, inflation of 4% in January was still significantly above the Bank of England’s target. This means knock-on effects for interest rates could be significant. Core inflation was 5.

1% in January, according to the Bank of England. This excludes the price of energy, food, alcohol and tobacco. Up to now soaring food and energy bills have been the main cause of high inflation. Oil and gas were in greater demand after Covid and prices also surged when Russia invaded Ukraine, cutting supplies.

Inflation hit 11. 1% in October 2022, the highest rate in 40 years. The rate has fallen since then, but lower inflation doesn’t mean prices are falling. One reason is that worker shortages are pushing up the cost of hiring and retaining employees.

By increasing borrowing costs there is a risk of harming the economy. For example, homeowners face higher mortgage repayments. Businesses also borrow less, making them less likely to create jobs. They are also encouraged to save more as saving rates increase.

In turn, this reduces demand for goods and slows price rises. Pay, excluding bonuses, grew by 6. 2% in the last three months of 2023 compared with the same period a year before. Several industries, including rail, healthcare and education, have gone on strike over pay.

The government has argued that big pay rises could push inflation higher. The annual inflation rate for countries using the euro was estimated to be 2. 9% in the year to December. The European Central Bank raised its key interest rate to 4%, a record high, in September and has left it unchanged since.

In the US, inflation hit 3. 1% last month.

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