Real Estate

UK inflation in surprise increase

The CPI inflation rate inched up to 4.0% in December – making the prospect of a base rate rise less likely.

Inflation rose from 3.9% in November, the first increase in 10 months.

A sharp rise in tobacco duty drove the rise, increasing the cost of tobacco by 16% year-on-year, alongside seasonal air fare increases.

Paresh Raja, chief executive of Market Financial Solutions, said: “Sticky inflation will only reaffirm to members of the Bank of England’s monetary policy committee that they are right to hold the base rate at 5.25%. It may therefore delay slightly the point at which they start to cut the base rate.

“That said, inflation is only 0.2% higher than experts had predicted (4% rather than 3.8%), so today’s data ought not to see any drastic shifts in the BoE’s plans.

“The expectation remains that the Bank will make cuts through the second half of the year, but today’s CPI print was a timely reminder that work is still to be done to get inflation under the BoE’s 2% target.”

One good piece of news in the stats is food inflation fell from 9.2% in November to 8% in December.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “We always knew inflation doesn’t rise and fall in straight lines, but this demonstrates that the path is going to be bumpy.

“The trend is likely to be downwards, especially with the World Bank expecting global growth to slow, and given the fact that the UK economy is already flirting with recession.

“However, there are likely to be more knocks on the way, with conflict in the Red Sea raising the risk of supply shortages, which could feed into higher prices. There’s the risk this could end up throwing a real spanner in the works.

“The market had been predicting a rate cut as soon as May, we’ll have to see whether this surprise rise in inflation prompts something of a rethink.

“The Bank of England has continued to emphasise that interest rates will stay as high as they have to for as long as is needed, so we could see this pushed back a little.”

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