Inflation fell unexpectedly in December. In a boost for Chancellor Rachel Reeveswhich is under increasing pressure after days of economic depression.
The Office for National Statistics said consumer price index (CPI) inflation eased to 2.5 percent in December from 2.6 percent in November. Most analysts had expected inflation to hold steady at 2.6 percent last month.
The figure is still above the Bank of England’s 2 percent target, which means the central bank is less likely to cut interest rates sharply, meaning higher costs for borrowers but more savings. Better rates for those.
Many economists expect two rate cuts this year, down from the four expected. The Bank of England base rate is currently 4.75%.
But softening inflation could offer hope for sharper cuts in borrowing costs, as well as ease fears that persistent inflation and economic stagnation could lead to a recession, said James Smith, research director at the Resolution Foundation. will converge in a scenario known as stagflation.
“Inflation has eased to 2.5 percent,” he said, adding to the government’s hopes for a sharp rate cut to ease some pressure on the fiscal outlook.
“While inflation remains above the Bank of England’s 2 percent target, a welcome drop in core inflation pressures in December provides some respite from a run of recent data that suggests Britain’s ‘stag suffers from ‘Flashion’.
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It comes amid mounting pressure on the chancellor. Borrowing costs, devaluation of the pound and Decline in business confidence.
Chief Secretary to the Treasury Darren Jones said the drop in inflation showed that “the Prime Minister Change planning Working”, but acknowledged that the government still had “more to do”.
He said that the reduction in inflation is good news for families across the country. Sky News.
“We know the cost of living is still an issue for a lot of people. The target is 2 per cent, it’s come down to 2.5 per cent, which is obviously much more stable than we were a few years ago, where It was reaching 11 percent and making everyone worry about their mortgage and rent and energy bills.
“So it is good news that inflation is coming down. This shows that the Prime Minister’s turnaround plan is working to stabilize the economy as a whole, but we still have a long way to go.
While the Tories welcomed the fall in inflation, shadow chancellor of Executor Mel Stride has hit out at some of Labour’s budget measures since coming to office, accusing the government of making economic growth “stone dead”. is
“While this month’s drop in inflation is welcome news, there are still challenges, to say the least Increase in National Insurance – some of which will be transferred to higher prices – yet to be cut”, he said.
“The key to our economy is continued growth, but this government has stonewalled that. The Chancellor urgently needs to explain how she will achieve this now.
Grant Fitzner, chief economist at the ONS, said: “Inflation was very low this month due to a drop in hotel prices, but it was up a year ago.
“Tobacco prices were on another downward trend, as prices have risen less than this time last year.
“This was partially offset by fuel prices and second-hand cars, which saw their first annual growth since July 2023.”
On the horizon, analysts expect that rising oil prices may start to add to inflation figures. High prices of petrol and diesel are often added to other prices because any goods that require transportation or processing require expensive energy. Brent crude oil prices have risen 10 percent in the past month to more than $80 a barrel.
The rise in the National Living Wage, which starts in April, could also push up prices as shops and factories pay more for wages and have to recoup their costs. The new rate will be £12.21 for workers aged 21 and over.
Sir Keir Starmer is facing growing calls to sack his chancellor. Amid growing turmoil in the economy, Mr Stride on Tuesday compared his position to a Shakespearean tragedy, adding: “To know or not to know? That is the question now.”
Downing Street was forced to insist on Monday. Ms. Reeves A few hours later, “for this whole Parliament” will be the Chancellor. The Prime Minister He seemed reluctant to back her up.Avoiding the “yes or no” question of whether she will still be in place in the next election.
The rising numbers were met with grilling from MPs in the Commons on Tuesday Government Borrowing Cost And the recent fall in the value of the pound, the chancellor admitted, stressed the need to go “further and faster” in its pursuit. economic development.
And she refused to rule out future spending cuts, saying she would not write a “five-year budget in the first six months of a Labor government” as she doubled down on her commitment to stick with it. Financial rules of Govt
According to the rules, day-to-day expenses should be met from revenues instead of borrowing more. But rising borrowing costs eat into available funding, which could force Ms. Reeves to either cut spending or raise taxes to comply with her rules when the budget watchdog votes on her own in March. Gives the latest forecast.