Official figures released on Wednesday revealed that Britain’s annual inflation rate unexpectedly dropped to 2.5% in month, relieving some of the pressure on the Labour government in the face of economic turmoil.
Analysts had predicted that the Consumer Prices Index (CPI) would remain unchanged from its November value of 2.6%.
One day after Finance Minister Rachel Reeves was compelled to defend the government’s economic management due to a recent dramatic increase in state borrowing costs and a significant decline in the value of the pound, the Office for National Statistics (ONS) released its most current reading.
“There is still work to be done to help families across the country with the cost of living,” Reeves said in response to the findings.
She went on to say, “I will work tirelessly every day to bring about that growth and raise living standards throughout the United Kingdom.”
Even if the annual inflation rate has decreased from a four-decade high of more than 11% in October 2022, Britons are still hindered by high borrowing rates and high energy bills.
According to chief ONS economist Grant Fitzner, “inflation eased very slightly as hotel prices dipped” last month after increasing in December 2023.
He stated that less than a year ago, “the cost of tobacco was another downward driver, as prices increased.”
Fitzner stated that the price of gasoline and used autos, which experienced their first yearly increase since July 2023, somewhat countered this.
According to figures released on Wednesday, the CPI increased by 0.3% on a monthly basis in December, compared to 0.4% in the same month last year.
According to the ONS, the core CPI, which does not include energy, food, alcohol, or tobacco, rose 3.2% in the 12 months ending in December, compared to 3.5% in November.
Following the statistics, London’s benchmark FTSE 100 index started up 0.7%, while the value of the pound rose against the dollar and the euro.
In a contentious argument, the main opposition Conservative party again called for the resignation of the chancellor of the exchequer, who had held the job for just over six months after Labour’s election victory.
Reeves has the full support of Prime Minister Keir Starmer.
Last Monday, UK 10-year bond rates, a crucial gauge of market confidence, hit their highest level since the global financial crisis of 2008.
The government is under financial strain as a result, and it may be forced to reduce spending and raise taxes even more.
Business tax increases were part of Reeves’ first budget in October, which was held responsible for Britain’s current economic growth difficulties.In light of the instability in the UK market, Reeves told parliament on Tuesday that the government must “go further and faster” in its attempt to spur economic growth.
The Bank of England
Even though it has decreased, Britain’s annual inflation rate is still higher than the Bank of England’s goal rate of 2.0 percent, which slows the rate at which interest rates are being lowered.
As UK inflation returned to normal, the BoE lowered borrowing prices in August for the first time since early 2020, from a 16-year high of 5.25%.
In November, it made even more cuts, and according to analysts, the next cut will take place the following month.
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