UK inflation unexpectedly increased to 4% in December

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UK inflation unexpectedly accelerated in December raising questions over how soon the Bank of England will start cutting interest rates.

Consumer prices rose at an annual rate of 4 per cent in December, up from 3.9 per cent in November, the first time the rate has increased since February 2023, the Office for National Statistics said on Wednesday.

The figure exceeded the 3.8 per cent forecast by economists polled by Reuters and followed a slowdown in the previous months, reducing pressure on the Bank of England to cut interest rates from a 15-year high of 5.25 per cent.

Core inflation, which excludes food and energy, was 5.1 per cent in December, unchanged from the previous month. It had also been expected to fall.

The pound was flat against the dollar on Wednesday morning having traded down 0.2 per cent ahead of the inflation figures.

The unexpected rise in headline inflation follows two months of sharp declines and mirrors similar upticks in inflation in the US and the eurozone.

Services inflation, which is closely monitored by policymakers as a better measure of domestic price pressures, accelerated to 6.4 per cent in December from 6.3 per cent in November.

Grant Fitzner, ONS chief economist, said: “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.”

He added that “these were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year”.

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 need to stay the course we have set out, including boosting growth with more competitive tax levels,” he added.