Inflation in the UK showed a modest decline in December 2024, yet it persisted above the Bank of England’s 2% benchmark. The Consumer Prices Index (CPI) recorded a 2.5% inflation rate over the past year, a slight decrease from the 2.6% observed in november, according to the Office for National Statistics (ONS).
Grant Fitzner, the ONS chief economist, explained: “Inflation eased very slightly as hotel prices dipped this month but rose a year ago. The cost of tobacco was another downward driver, as prices increased by less than this time last year.”
he further noted: “This was partly offset by the cost of fuel and also second-hand cars, wich saw their frist annual growth since July 2023.”
Economic analysts predict a brief respite before inflationary pressures intensify in 2025, driven by Chancellor’s budgetary initiatives. Forecasts suggest inflation could climb to 3.2% by April, with price escalations expected to accelerate.
Sanjay Raja, a senior economist at Deutsche Bank, remarked: “Looking ahead, price momentum will only pick up from here. increases to the National Living Wage and Employer National Insurance Contributions will, we expect, push inflation higher over 2025. Higher energy prices won’t help either, nor will higher food prices, which are starting to emerge.”
Martin Sartorius of the Confederation of British Industries echoed this sentiment: “We expect inflation will stay elevated this year, partly due to autumn budget measures contributing to higher prices.”
In response to the unexpected dip, Chancellor Rachel Reeves vowed to “fight every day” to enhance living standards: “There is still work to be done to help families across the country with the cost of living.That’s why the Government has taken action to protect working people’s payslips from higher taxes, frozen fuel duty and boosted the national minimum wage.”
She added: “In our plan for change, we were clear that growth is our number one priority to put more money in the pockets of working people. I will fight every day to deliver that growth and improve living standards in every part of the UK.”
Despite inflation lingering above the 2% target,markets are leaning towards a Bank of England interest rate reduction in February. However, the possibility of escalating inflation casts uncertainty over further rate adjustments.
Scott Gardner of Nutmeg observed: ”Policymakers and treasury officials will be breathing a small sigh of relief as new data shows that inflation fell during the final month of 2024, beating market expectations. This data will increase the chances that the Bank of England cuts interest rates in February, though the path remains murky for multiple rate cuts this year.”
Ed Monk from Fidelity International commented: “Inflation is stubbornly above target while growth has begun to slowdown – that’s the path to ‘stagflation’. The market view of where rates will land has been shifting, with one fewer rate cut now expected in 2025 than was the case a month ago. Markets ahead of the inflation print were suggesting another two cuts this year. Today’s reading keeps that on track for now.”
These latest figures emerge during a period of financial market volatility in the UK, marked by a sharp decline in the pound’s value and a rise in borrowing costs to levels unseen in decades.
Amidst this financial upheaval, which threatens the government’s fiscal strategies, Chancellor Reeves emphasized the urgency of rapid economic growth: “We have seen global economic uncertainty play out in the last week. But leadership is not about ducking these challenges.It is about rising to them.”