UK inflation unexpectedly dipped last month, while the closely watched core rate, which strips out volatile energy and food costs, fell more than expected.
The consumer prices index rose by 2.5% in the 12 months to December, down from 2.6% in November, according to the Office for National Statistics. Economists had expected inflation to stay steady at 2.6%.
This is welcome news for the Bank of England, whose target is to keep inflation at 2% “over the medium term” – the next two years.
Core inflation fell to 3.2% from 3.5%, a bigger drop expected. City analysts had expected the rate to edge lower to 3.4%.
Looking at the detail, the annual inflation rate for restaurants and hotels fell to 3.4% in December, from 4% in November, and marking the lowest annual rate since July 2021.
Prices at hotels fell by 1.9% between November and December, while prices at restaurants and cafes rose less than in the same period a year ago, contributing to the decline in overall inflation.
Prices for alcohol and tobacco rose at an annual rate of 5.3% last month, down from 6.8% in November, because of an increase in tobacco duty in November 2023. However, prices for alcoholic beverages such as wine fell by less than the year before.
Food prices rose by 2% in the year to December, unchanged from November. Food inflation has fallen sharply since hitting a peak of 19.2% in March 2023, which was the highest annual rate for 45 years.
Prices were either unchanged or rose at a lower rate between November and December than a year earlier, for bread and cereals, and mineral water, soft drinks and juices.
However, prices of fruit, as well as sugar, jam, honey, syrups, chocolate, and confectionery went up.
Air fares rose by 16.2% between November and December, down from the monthly rise of 57.1% a year earlier. It is normal for fares to rise into December, the ONS said, but the rise last month was the lowest December rise since December 2019, and it is the third-lowest December rise since monthly price collection began in 2001.
Part of the reason for the lower-than-usual growth may be because the return date for the European flights in last month’s index was Christmas Eve and the return date for long-haul flights was New Year’s Eve.
Markets are on tenterhooks ahead of the US inflation figures for December. They are expected to show an increase to 2.9% in the annual rate in December, from 2.7% in November.
Traders have already scaled back their bets on US interest rate cuts, and are only expecting one quarter-point reduction by December.
The agenda
• 9am GMT: International Energy Agency releases monthly oil report
• 9am GMT: Germany 2024 GDP
• 1.30pm GMT: US inflation for December (previous: 2.7%; forecast: 2.9%)
We'll be tracking all the main events throughout the day … |
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