The UK’s inflation rate rose sharply to 3% in January 2024, surpassing market expectations and reaching its highest level since March 2023.
The increase was primarily driven by three key factors: the introduction of 20% VAT on private school fees causing a nearly 13% price rise, higher food and non-alcoholic drink prices particularly affecting meat, bread, and cereals, and unusually modest declines in air fares during the post-holiday period. Core inflation, which excludes volatile food and energy prices, also increased significantly from 3.2% to 3.7%.
While this represents a setback for consumers, the Bank of England, which has cut interest rates three times since last summer, describes the inflation path as “bumpy” and forecasts it will reach 3.7% by mid-year amidst weak economic growth.