LONDON (Reuters) – British consumer price inflation unexpectedly held steady at an annual rate of 4.0 per cent in January, defying forecasts for it to rise, official data showed in a boost for the Bank of England.

Economists polled by Reuters had forecast an increase to 4.2pc. Inflation is expected to fall further in the coming months, paving the way for the BoE to start cutting borrowing costs from their 16-year high.

Sterling weakened against the dollar and the euro immediately after the inflation data was published. Investors added to their bets on BoE rate cuts this year.

"Overall, the latest inflation data should reassure the Monetary Policy Committee that the time to start cutting interest rates is approaching," Martin Beck, chief economic advisor to the EY ITEM Club, said.

Wednesday's stable British inflation data followed a stronger-than-expected increase in price growth in the United States announced on Tuesday.

Britain's core inflation – which excludes volatile food, energy, alcohol and tobacco prices – was also unchanged at 5.1%, the Office for National Statistics said.

Services inflation – an indicator of domestic price pressures which is closely watched by the BoE – rose to 6.5pc from 6.4pc in December but was not as strong as the BoE had expected.

The British central bank fears rapid wage growth – which makes up much of the inflation rate in the services sector – could add more inflationary pressure across the economy.

Data published on Tuesday showed regular wages rose by an annual 6.2pc in the last three months of 2023, the slowest increase in over a year but about double the pace the BoE views as consistent with getting inflation back sustainably to 2pc.

"Inflation never falls in a perfect straight line, but the plan is working. We have made huge progress in bringing inflation down from 11pc and the Bank of England forecast that it will fall to around 2pc in a matter of months," finance minister Jeremy Hunt said.

MPC member Jonathan Haskel, one of two policymakers who voted to raise interest rates at the BoE's most recent meeting, last week told Reuters he would need to see more evidence of inflation pressures weakening before changing his stance.

In welcome news for consumers, food inflation fell for the first time in monthly terms since September 2021, dropping by 0.4pc from December.

High inflation has impacted British households' living standards over the last couple of years, contributing to the electoral challenge facing Prime Minister Rishi Sunak who is facing a national election expected later this year.