Energy price cap blamed for dip in inflation

Mark Carney, governor of the Bank of England.
Mark Carney, governor of the Bank of England.

Inflation fell below the Bank of England’s target for the first time in two years in January thanks to the new cap on energy prices.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 1.8% last month, the largest drop since 2016, from 2.1% in December.

January inflation missed economists’ expectations and undershot the central bank’s target of 2%.

Sterling held firm after the news, at 1.289 US dollars and 1.138 euros.

Inflation was dragged down by lower electricity, gas and petrol prices between December and January, which was partially offset by lower air fares.

The main driver for inflation was the new energy price cap on standard variable tariffs recently introduced by energy watchdog Ofgem.

Mike Hardie, head of inflation at the ONS, said: “The fall in inflation is due mainly to cheaper gas, electricity and petrol, partly offset by rising ferry ticket prices and air fares falling more slowly than this time last year.

“House prices continued to grow, albeit at the lowest UK annual rate since July 2013, with growth in the North East and London lagging behind Northern Ireland, Wales and the West Midlands.”