The United Kingdom's economy continues to grapple with sluggish growth prospects, as recent data reveals a modest expansion of 0.1% in November. Economists express concern over external headwinds, including potential trade tariffs, which may exacerbate the situation. The Labour government and Treasury are navigating internal fiscal challenges amid rising government borrowing costs and scrutiny over their fiscal strategies.
Recent inflation data provides a mixed picture. The consumer price index rose by a lower-than-expected 2.5% in December, marking a cooling of inflationary pressures compared to previous months. Core inflation, excluding volatile food and energy prices, registered at 3.2% over the same period. A notable decrease was also observed in the annual services inflation rate, which fell from 5% in November to 4.4% in December.
The Bank of England (BOE) faces a critical decision on February 6 regarding interest rates, currently set at 4.75%. Given the recent cooling of consumer prices and core inflation, the BOE may consider lowering the key rate to 4.5%. Policymakers will evaluate factors like resilient wage growth and persistent uncertainty about Britain's economic outlook as they deliberate this potential adjustment.
Inflation in the U.K. had previously reached a more than three-year low of 1.7% in September, driven by higher fuel costs and rising service prices. Despite the recent cooling, the Labour government and Treasury remain under pressure as they confront economic hurdles and rising borrowing costs.