Inflation in the UK was 10.1% in January, the latest data from the Office for National Statistics (ONS) reveals.

January’s figure is down from the 10.5% reported in December and down from a peak of 11.1% in October.

The easing in the annual inflation rate in January 2023 mainly reflected price changes in the transport division, particularly for passenger transport and motor fuels. 

There were also downward effects from restaurants and hotels, with the largest, partially offsetting, upward effect coming from alcoholic beverages and tobacco.

Earlier this month, the Bank of England (BoE) hiked the base rate by 50 basis points to 4% from 3.5%.

The next Monetary Policy Committee (MPC) meeting is scheduled for 23 March.

Commenting on the latest figures, Interactive Investor senior finance analyst Myron Jobson says: “Inflation has continued its slow grind lower to 10.1% in January, down from 10.5% the previous month. It doesn’t mean that Britons will suddenly find that the costs of good and services are getting cheaper. It just means that prices aren’t rising as fast.”

“With inflation remaining stubbornly high, the BoE could take the view that continued interest rate hikes might still be necessary to rein it in.”

“Higher interest rates increase the cost of borrowing for things like cars, loans and mortgages. The toxic mix of rising prices rising borrowing costs and failing incomes in real terms threatens to batter household finances for some time to come.”

Mather & Murray Financial managing director Samuel Mather-Holgate comments: “Inflation coming down faster than expected means it’s slightly less likely the central bank will hike rates by 0.5% next month, although that’s still the most accepted direction of travel.”

“Inflation should nosedive in a few months and even be back down to the 2% target by the end of the year so bank rate cuts are coming. The sensible thing for the MPC to do now would be to pause and take a breath, and release the thumb screws that are inflicting so much pain on homeowners.”

Riverside Mortgages founder Lewis Shaw suggests that while it’s “positive” to see inflation figures moving in the right direction, “there’s still a huge gulf between where inflation should be”.

Shaw says: “This won’t stop the BoE from hiking the base rate again on 23 March at the next MPC meeting. It should, but it won’t. It seems the most likely hike now will be 0.25%, and we have to hope most of this is already priced in.”

“For mortgage borrowers, this means rates will stay broadly where they are for the rest of this year. In the past few days, we’ve seen swap rates nudge up, which is probably the nail in the coffin for any meaningful fixed rate reductions. This is the new normal and we all need to accept it.”

The Business Finance Branch’s Mark Grant states: “While prices are still rising at 10.1% year on year, a lower figure than last month and a bigger fall than predicted in January is good for business sentiment and confidence in the months ahead.”

“It may well reinforce the BoE’s forecast that we are at or near the top of the interest rate-raising cycle. Businesses need the confidence to invest and hire staff and this improving inflation figure – while still high – could contribute to that.”

Phoebus Software chief revenue officer Adam Oldfield adds: “All in all the UK economy seems to be defying predictions with GDP up and now inflation easing more quickly than many had thought.”

“Although the percentages are small it is a step in the right direction. Nonetheless, we heard only yesterday that real wages are struggling to keep up with inflation, so we have a way to go before that situation changes and people start to feel like they are in pocket rather than out. This will not be helped in the coming months if energy prices increase to the level that we have been told to expect.”

“This is a crucial time for both lenders and brokers. Ensuring that existing borrowers have the best deal and that exposed borrowers are getting the best advice and help to try to ensure that the recent small rise in arrears isn’t an increasing trend.”

“No doubt the question for many now is, will this drop in inflation be enough for the BoE to hold interest rates at their current rate, or will we still see another rise when the MPC next meets in March? As we head into spring, a traditionally more buoyant time for the housing market, this could be key for momentum.”