LONDON – Inflation in the United Kingdom fell to a lower-than-expected 2.5 percent in December, 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 December’s reading to be unchanged.
Core inflation, which excludes more volatile food and energy prices, was 3.2% in the twelve months to December, down from 3.5% in November.
The UK inflation rate hit a more than three-year low of 1.7% in September, with monthly prices rising due to higher fuel costs and increases in service charges rising faster than goods prices. In December, the annual inflation rate of services amounted to 4.4%, which is a decrease compared to 5% in November.
The British pound it was down 0.3% against the dollar at 07:15 a.m. London time, shortly after the announcement.
Commuters cross a junction near the Bank of England (BOE), left, in the City of London, United Kingdom, Wednesday, May 8, 2024. Bank of England politicians appear to be the most divided since they ended their walkout cycle last year, illustrating the challenge Governor Andrew Bailey faces in guiding his colleagues toward possible rate cuts in the coming weeks. Photographer: Hollie Adams/Bloomberg via Getty Images
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The data will serve as food for thought for the Bank of England ahead of its next meeting on February 6, when it will 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 the UK’s economic outlook.
The UK economy has been in a tight spot lately, and economists are expressing concern slow growth prospects of the country and concerns about obstacles caused by external factors, such as potential trade tariffs after President-elect Donald Trump takes office, and internal fiscal and economic challenges that have plagued the Labor government and the finance ministry since the budget in October.
Responding to the latest data, British Chancellor Rachel Reeves said on Wednesday that “there is still work to do to help families across the country with the cost of living”, and that economic growth is the UK’s priority.
Fiscal challenges
The tax hike announced by the government last autumn, which is due to come into effect in April, has caused consternation among British businesses who warn that investment, employment and growth will be halted.
Borrowing costs and currencies also weakened in the UK on jitters about the country’s economic outlook and fiscal plans, posing a dilemma for Finance Minister Rachel Reeves’ ambitions to balance the budget.
Reeves has promised to stick to self-imposed fiscal rules to ensure that all day-to-day spending is covered by revenue and that the national debt is on a downward trend. Now she may be forced to decide whether to adapt or break those restrictions.
The choices he faces are to do nothing and hope that adverse borrowing conditions ease, to raise taxes further – a move that is likely to draw more criticism from businesses and the public – or to cut public spending, a move that the government already discussing but opposing Labour’s anti-“austerity” position. last weekend, Reeves said the fiscal rules outlined in the budget are “non-negotiable.” adding that “economic stability is the foundation of economic growth and prosperity.”
Ben Zaranko, associate director of the Institute for Fiscal Studies, said Reeves faces “a pretty unenviable array of options.”
“This unfortunate situation is largely the result of a difficult fiscal legacy and global economic factors,” he said in a commentary.
“But it also reflects a series of government choices and mutually incompatible promises: to stick to a hard, numerical fiscal rule leaving only the tiniest of margins against it; to prioritize public services and avoid imposing another round of austerity; not to raise the highest taxes, and not to raise taxes after the Autumn Budget ; and to hold only one fiscal event per year, if more interest is deleted, something will have to be given,” Zaranko added.
