The UK's inflation rate recorded a slight dip in December, registering at 2.5%, down from 2.6% in November. Although this is a step closer to the Bank of England's 2% target, the rate remains above the desired level. The latest consumer price index (CPI) reading suggests that inflation is trending in the right direction, providing a glimmer of hope for economic stability.
Inflation rates across various sectors have shown mixed results. Prices in restaurants and hotels experienced an annual inflation rate of 3.4% in December, down from 4% in November, marking the lowest rate since July 2021. This decline in core inflation, which excludes volatile elements, is a positive indicator for the economy as it dropped to 3.2% in December.
Transport prices also contributed to the easing inflationary pressure, decreasing by 0.6% over the year to December, driven primarily by falling air fares. However, the cost of secondhand cars increased, playing a role in sustaining inflation levels. Food prices presented a static scenario, rising by 2% in the year to December, unchanged from the previous month. Retailers are expected to potentially raise food prices in upcoming months due to shifts in business costs.
The Bank of England remains vigilant about domestically generated price increases, an area of concern for policymakers. Market estimates suggest a 74% probability of an interest rate cut on February 6, as the UK's economic growth continues to be a critical issue for decision-makers.
Ed Monk from Fidelity International commented on the situation:
"Higher rates are restricting economic activity, but the Bank clearly still fears any loosening of borrowing cost could let price rises accelerate, heaping yet more pressure on households," – Ed Monk, of the investment management firm Fidelity International.
The Bank of England's monetary policy committee is tasked with balancing inflation control and promoting economic growth. The recent dip in inflation rates provides some relief but also highlights underlying challenges that persist within the economy.