LONDON – UK inflation fell to a lower-than-expected 2.5% in December, with core price growth slowing further, according to data released by the Office for National Statistics on Wednesday.
The Consumer Price Index (CPI) rose to 2.6% in November, with economists polled by Reuters expecting the December reading to remain unchanged.
Core inflation, which excludes more volatile food and energy prices, was 3.2% in the 12 months to December, down from 3.5% in November.
UK inflation reached its lowest level in more than three years at 1.7% in September, with monthly prices rising since then on the back of rising fuel costs and service charges rising faster than goods prices. In December, the annual inflation rate in services was 4.4%, down from 5% in November.
the British pound It fell 0.3% against the dollar at 07:15 a.m. London time, shortly after the release.
Commuters cross a junction near the Bank of England (BOE), left, in the city of London, UK, on Wednesday, May 8, 2024. Policymakers at the BOE appear to be their most divided since they ended their hiking course last year and are Which illustrates the challenge Governor Andrew Bailey faces in guiding his colleagues towards potential interest rate cuts in the coming weeks. Photographer: Holly Adams/Bloomberg via Getty Images
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This data will serve as food for thought for the Bank of England ahead of its next meeting on February 6, during which it will be held The central bank is expected to cut its key interest rate from 4.75% to 4.5%, despite inflationary pressures, such as resilient wage growth and uncertainty about Britain's economic outlook. The inflation target set by the central bank is 2%.
The UK economy has found itself in a difficult situation recently, with economists expressing concerns about it Slow growth prospects in the country Concerns about headwinds from external factors, such as potential trade tariffs once President-elect Donald Trump takes office, and Internal fiscal and economic challenges have dogged the Labor government and the Treasury since the October Budget.
In response to the latest data, British Chancellor Rachel Reeves said on Wednesday that “there is still work to do to help families across the country cover the costs of living”, and that economic growth is the UK's priority.
Financial challenges
Tax rises announced by the government last fall, which are due to come into force in April, have caused panic among British businesses who warn they will hamper investment, employment and growth.
The UK also saw its borrowing and currency costs fall amid tensions over the country's economic outlook and fiscal plans. Which poses a dilemma for Finance Minister Rachel Reeves' ambitions to balance the budget.
Reeves pledged to adhere to self-imposed fiscal rules to ensure that all daily spending was covered by revenues and that government debt was on a downward trend. You may now have to decide whether to modify or break these restrictions.
The choice it faces is to do nothing and hope that unfavorable borrowing conditions subside, raise taxes further – a move likely to draw more criticism from businesses and the public – or cut public spending, a move the government is already discussing but is at odds with. The Labor Party's anti-austerity position. last weekend, Reeves said the fiscal rules set out in the budget are “non-negotiable.” Adding that “economic stability is the cornerstone of economic growth and prosperity.”
Ben Zaranko, associate director at the Institute for Fiscal Studies, said Reeves faces “an unenviable set of choices.”
“This unfortunate impasse is largely the result of a difficult financial legacy and global economic factors,” he said in a commentary.
“But it also reflects a series of inconsistent government choices and promises: sticking to a strict fiscal rule while leaving the smallest margins behind it; prioritizing public services and avoiding another round of austerity; and not raising the state budget.” “There should be bigger taxes, not increasing taxes again after the autumn budget, holding only one fiscal event a year, and if higher interest rates eliminate the so-called ‘rise’, then something has to happen,” Zaranko added.
