United Kingdom annual inflation has soared to 3.4% for year ending December. This is the first monthly increase after five months of declines. Then, the Office for National Statistics (ONS) published the official figures. This demonstrates that increasing tobacco and airfare prices were largely responsible for this growth. Economists had been expecting just a slight increase up to 3.3%, so the new number comes in just above expectations.
National airfares skyrocketed last year during the Thanksgiving and Christmas holiday weeks. More than four million travelers quickly piled on to reserve inbound flights home for Christmas and New Year’s. ONS attributed this spike to the timing of these flights, showing a direct connection to seasonal travel patterns. Airfares aren’t the only culprit pushing inflation higher. The increase, mainly due to tobacco prices, following an increase in tobacco duty that was introduced at the end of November played an important role in the increase.
In response to the numbers, Chancellor Rachel Reeves reiterated labours determination to bring down the cost of living. Among the various measures she highlighted from her November Budget. These measures go beyond action recently announced by government, such as freezing rail fares and prescription charges to help alleviate financial pressures on households.
“Money off bills and into the pockets of working people is my choice.” – Rachel Reeves
The Consumer Prices Index (CPI) is the government’s measure of inflation. That includes a virtual basket of hundreds of common goods and services. This basket is essentially a grocery list for things like bread, fruit, furniture, and all kinds of clothing. Grant Fitzner, chief economist at the ONS, pointed to the influence of soaring food prices. In particular, he noted that sharp increases in prices for bread and cereals are pushing inflation up as well.
Looking ahead, the UK economy is still dealing with the impact of sudden changes in the price level. This news on inflation comes right before the Bank of England’s February interest rate decision. That data will set the stage for upcoming monetary policy decisions as policymakers continue to take stock of this uncertain economic landscape.
Chancellor Reeves sounded notes of optimism about our future economy, claiming that “big things” are coming.
“There’s more to do, but this is the year that Britain turns a corner.” – Rachel Reeves