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UK inflation unexpectedly slowed to 2.5 per cent in December as the economy weakened, easing pressure on Chancellor Rachel Reeves and paving the way for the Bank of England to press ahead with interest rate cuts.
The CPI number was lower than November's reading of 2.6 percent. Analysts had expected inflation to stabilize last month.
It will provide some relief to Reeves, who faces rising borrowing costs fueled by fears that the UK economy may enter a period of stagflation.
The ONS report comes as the Bank of England's Monetary Policy Committee prepares to hold its first meeting of 2025 early next month. Investors are betting that the central bank will cut interest rates by a quarter of a percentage point to 4.5 percent.
The Bank of England has estimated that the economy will experience a recession in the last quarter of 2024. Business surveys point to weak confidence and employment, which could dampen inflationary pressures.
Wednesday's data showed services inflation, which the Bank of England closely monitors as a measure of underlying price pressures, slowed sharply to 4.4 percent from 5 percent previously.
Core inflation, which excludes food and energy, fell to 3.2 percent from 3.5 percent.
The pound fell slightly after the data was released, falling 0.3 percent during the day to $1.218. Traders in swap markets have attributed a 60 percent chance of a quarter-point cut next month, according to levels before the data was published.
The central bank cut its key interest rate to 4.75 percent in two quarter-point moves last year.
This is a developing story
