UK CPI inflation likely to stay muted this year

UK's January CPI inflation rose to 0.3% y/y against December's print of 0.2% y/y, in line with market consensus. Core inflation decreased to 1.2% in January as compared to 1.4% y/y in December.

The marginal increase in headline inflation has been attributed by energy and food, alcoholic beverages and tobacco. Air fares weighed on the inflation as it dropped 35.8% m/m in January after witnessing an increase of 46.0% m/m in December. This component dragged the overall inflation down by 0.20pp and core inflation by 0.27pp. 

"Both CPI inflation and CPI core inflation are expected to remain subdued in 2016 due to a combination of the past appreciation of GBP and the low commodity prices", Danske Bank said in a research note.