Despite the Ofgem energy price cap rise and base effects, Martin Beck, chief economic advisor to the EY ITEM Club believes inflation will dip to, or even below, the Bank of England’s 2% target in the coming months.

The sustained drop in wholesale gas prices indicates a more significant reduction in energy bills than previously anticipated. Wages growth has seen a notable decline in recent months. Ongoing geopolitical tensions are expected to have a limited inflationary impact. These factors position the Monetary Policy Committee (MPC) for potential interest rate cuts in the next few months.

Core inflation, excluding volatile food and fuel, stayed at 5.1%, while services inflation edged up to 6.5%, slightly below the Bank of England’s forecast of 6.6%.

Kevin Brown, savings specialist at Scottish Friendly, commented: “At the moment you would be forgiven for feeling that inflation is not merely sticky but is here for the foreseeable future. The hope for many watchers of UK mortgage rates and the UK economy was that while 2023 saw an inflationary spike, by the time 2024 rolled around we would start to see the headline rate of inflation and core inflation dropping.

“However, January’s figures show that the UK’s uninvited economic guest is refusing to leave, and the concern now is whether The Monetary Policy Committee (MPC) will need to turn the heat up even higher in the shape of further rate rises to curb inflation. Mortgage borrowers and the wider UK economy will be hoping not, as higher mortgage repayments and the potential for a recession are both likely to cause problems for many families.”

Mr Brown continued: “On the flip side, if rates stay higher in the short-term inflation beating options for cash savers remain available and many may still feel the attraction of easy access cash in times of economic uncertainty.

“However, for UK households considering the best home for their money over the medium to long term, now might be a good time to consider investment options.

“Inflation will be tamed sooner or later, and when it is, the good cash deals currently available will start to get fewer and farther between. That could mean investing presents a good option to keep generating returns on your money.”