Inflation in the UK has falling slightly in a win for consumers, according to the latest figures from the Office for National Statistics (ONS). The consumer price index (CPI) rate for the 12 months to December 2024 dropped to 2.5 per cent, up from 2.6 per cent the month before.
Britons have been saddled with inflation-hiked prices amid the ongoing cost of living crisis with today’s figures likely to ease financial concern for millions of households across the country.
The news places is good news for Chancellor Rachel Reeves, who is under scrutiny over the Autumn Budget decisions which many have blamed for gilt yields rising over the past week.
Businesses have reacted negatively to Labour’s decision to raise the rate paid on National Insurance contributions for employers with many claiming it will raise prices and cost jobs.
However, the latest ONS figures suggest prices will not be rising as much as expected in the near future, despite ongoing concerns over the Bank of England interest rate.
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The Chancellor has been handed a reprieve following the latest inflation figures
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According to the ONS, the largest downward contribution to the monthly change in the CPI annual rates came from restaurants and hotels, while the largest upward contribution to both came from transport.
Over the period, core CPI increased by 3.2 per cent, which is down from 3.5 per cent. in November. Furthermore, the CPI goods annual rate rose from 0.4 per cent to 0.7 per cent, while the CPI services annual rate fell from five per cent to 4.4 per cent.
Joe Nellis, an economic adviser to MHA, noted today’s figures are “welcome news” for the country and the Chancellor but warned inflation is still “dogging the economy”.
He explained: “In light of the recent backlash from the financial markets against the UK, it is important to note that alongside international and domestic political uncertainty, as well as a sluggish UK economy, sticky inflation is currently contributing to an increase in UK bond yields – and hence up the cost of Government borrowing.
“As inflation erodes the real value of government debt, the price of borrowing (bond yields) increases to cover this. With this, the threat of the UK falling into a debt spiral looms large.”
Nick Saunders, the CEO of stock trading platform Webull UK, added: “A failure to get inflation down to 2% is going to make it very hard for the bank to cut interest rates in the medium term, especially given the backdrop of a rising UK bond yields.
“A depressed pound will add to inflationary pressure, particularly in energy prices, so it’s no surprise that the market is no longer expecting a sequence of rate cuts in 2025. It’s going to be a tough start to the year, although a small drop to 2.5 per cent will give the Chancellor some breathing space.”
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