UK inflation holds steady at 4%, lower than expected

LONDON — U.K. inflation held steady at 4% year-on-year in January on the back of easing prices for furniture and household goods, food and non-alcoholic beverages.

Month-on-month, the headline consumer price index fell to -0.6%, returning to negative territory after December's surprise increase by 0.4% on the month and 4% annually.

Economists polled by Reuters had produced a consensus forecast of 4.2% year-on-year for January and -0.3% for the month.

"The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from housing and household services (principally higher gas and electricity charges), while the largest downward contribution came from furniture and household goods, and food and non-alcoholic beverages," the Office for National Statistics said Wednesday.

The closely watched core CPI figure — which excludes volatile food, energy, alcohol and tobacco prices — came in at an annual 5.1%, below a consensus estimate of 5.2%. On a monthly basis, core CPI slid to -0.9%, below a -0.8% forecast.

"Inflation never falls in a perfect straight line, but the plan is working; we have made huge progress in bringing inflation down from 11%, and the Bank of England forecast that it will fall to around 2% in a matter of months," U.K. Finance Minister Jeremy Hunt said in a statement.

The CPI goods annual rate slowed from 1.9% to 1.8%, but price pressures in the services industry remained hot, with the CPI services annual rate rising from 6.4% to 6.5%.

"The latest inflation print is another reflection of what is happening in the labour market: a tight labour supply is sustaining high wage growth and thus underlying inflationary pressures, especially in services," said Marion Amiot, senior European economist