The annual rate of inflation unexpectedly rose last month when the cost of living went up by 4%, latest official data reveals today.
The surprise increase in December's Consumer Price Index - from 3.9% in November - is a blow to the Bank of England in its struggle to bring the headline rate of inflation back down to its 2% target by the Spring after an arduous two and a half year battle to contain rampant price rises.
Today’s CPI data shows that a big hike in tobacco duties at the end of the year was largely responsible for the rise, the first since February.
However food prices were up only by 8% in December 2023, easing for the ninth consecutive month from a recent high of 19.2% in March 2023, the highest annual rate seen for over 45 years.
Core inflation, which strips out more volatile components of the CPI such as food and energy, was unchanged at 5.1%, ahead of expectations.Chancellor Jeremy Hunt said: “As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it.
"We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”Prices exploded when the world began to emerge from the lockdown and restrictions of the Covid era. Inflation was then turbo-charged when the full scale Russian invasion of Ukraine in February 2022 sent energy prices soaring.
The CPI peaked at 11.1% in October 2022, but it has fallen steeply in recent months as the cost of energy has subsided and rapid hikes in the cost of borrowing have taken heat out of the economy.
Today’s blip is a setback to hopes that the Bank will order its first cut in interest rates since the start of the pandemic in March 2020 when they stepped down from 0.25% to an emergency level of just 0.1%, an all-time low.
They began rising in December 2021 as inflation started to rocket, reaching the current level of 5.25% in August. City market expectations are now shifting towards a June rather than a May cut.
Shona Lowe, financial planning expert at abrdn, said: “After months of consistently slowing inflation, a rise will be a disappointing result for households.
"And while we wait to hear what the Bank’s interest rate decision is in early February, right now, the best thing savers can do is to focus on steps that will support long-term financial resilience. That includes maximising potential returns on money through saving and investing options where possible."
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said: “The ONS’s announcement of December’s inflation data confirms a pause for breath following sharper declines than expected in the two months prior.
"The monthly headline rate of CPI edged up by 0.4%, the same rate as November, a consequence of retailers increasing prices following the Black Friday sales, but this rise disguises continued falling food prices seen across autumn. Although prices are still rising in aggregate and remain above the Bank of England’s desired 2% target, the general direction of travel indicates that the economy will begin to blossom again as winter turns to spring. "
Kevin Pratt, business expert at Forbes Advisor, said: "Inflation edging up to 4% in December shows that the UK economy is far from out of the woods just yet. Forecasters had confidently predicted that the rate at which prices are rising would continue its recent trajectory and fall further from 3.9% to as low as 3.7% when today's figures from the ONS were released. But the surprise increase - which puts inflation at twice the Bank of England's target - suggests the path out of the forest remains fraught with danger.
