UK Inflation Surges for First Time in Five Months as Air Fares and Tobacco Prices Drive Up Costs.
The UK's inflation rate has risen by 0.2 percentage points to 3.4% in December, marking the first increase in five months. The Office for National Statistics (ONS) attributed this uptick primarily to higher air fares, which skyrocketed by a staggering 28.6%. Additionally, tobacco prices also rose as a result of duties introduced by Chancellor Rachel Reeves in her autumn budget.
Despite City economists' expectations of a modest rise to 3.3%, the inflation rate has exceeded forecasts. The reversal of the downward trend is temporary and should not set alarm bells ringing, according to Martin Beck, chief economist at WPI Strategy.
However, analysts are warning that the Bank of England's monetary policy committee (MPC) may maintain interest rates at 3.75% when it meets in February, as opposed to considering a cut until June. The bigger-than-expected increase in consumer prices index (CPI) suggests that price pressures remain under control.
In contrast, services inflation, which is closely watched by the Bank of England, rose to 4.5%, driven primarily by volatile categories such as air fares and hotel prices. Yael Selfin, chief economist at KPMG UK, believes that this increase was largely a result of temporary factors rather than broader price pressures.
Food inflation continued its upward trend, with annual food inflation rising to 4.5%, primarily due to an increase in the price of breads and cereals. Core inflation, which strips out volatile items such as energy and food, remained steady at an annual rate of 3.2%.
As for interest rates, City traders have largely ruled out a cut next month, with forecasts suggesting that services inflation will ease over the coming months alongside slower wage growth. The Chancellor aims to tackle the cost of living by introducing tax increases and other measures in her budget.
The Bank's governor, Andrew Bailey, expressed confidence that inflation would return to its 2% target by mid-year.
The UK's inflation rate has risen by 0.2 percentage points to 3.4% in December, marking the first increase in five months. The Office for National Statistics (ONS) attributed this uptick primarily to higher air fares, which skyrocketed by a staggering 28.6%. Additionally, tobacco prices also rose as a result of duties introduced by Chancellor Rachel Reeves in her autumn budget.
Despite City economists' expectations of a modest rise to 3.3%, the inflation rate has exceeded forecasts. The reversal of the downward trend is temporary and should not set alarm bells ringing, according to Martin Beck, chief economist at WPI Strategy.
However, analysts are warning that the Bank of England's monetary policy committee (MPC) may maintain interest rates at 3.75% when it meets in February, as opposed to considering a cut until June. The bigger-than-expected increase in consumer prices index (CPI) suggests that price pressures remain under control.
In contrast, services inflation, which is closely watched by the Bank of England, rose to 4.5%, driven primarily by volatile categories such as air fares and hotel prices. Yael Selfin, chief economist at KPMG UK, believes that this increase was largely a result of temporary factors rather than broader price pressures.
Food inflation continued its upward trend, with annual food inflation rising to 4.5%, primarily due to an increase in the price of breads and cereals. Core inflation, which strips out volatile items such as energy and food, remained steady at an annual rate of 3.2%.
As for interest rates, City traders have largely ruled out a cut next month, with forecasts suggesting that services inflation will ease over the coming months alongside slower wage growth. The Chancellor aims to tackle the cost of living by introducing tax increases and other measures in her budget.
The Bank's governor, Andrew Bailey, expressed confidence that inflation would return to its 2% target by mid-year.
anyway back to the news... im thinkin inflation will def rise again soon cuz air fares r still super high and i heard they're raising tobacco prices in march ugh i hate when that happens 
btw wpi strategy chief economist martin beck said its not a big deal but idk lol
... 3.4% is still pretty manageable, but if interest rates go up again, it might impact borrowing costs and consumer spending 
. I'm not sure what to make of the services inflation spike, though - 4.5% is steep 
. Still, Yael Selfin makes a valid point about temporary factors driving the increase, so let's keep an eye on how things play out in Q1 
. Hopefully, the Chancellor's budget measures will help ease the cost of living burden 
3.4% inflation is crazy! i was just checkin the prices of flights last week and they were already like 50% more than last year lol how can air fares just go up that much?! 
what's next? more expensive breads and cereals too?! 
️ despite us being post covid. like, shouldn't prices drop or something? 
and already prices are rising again?! I swear it feels like the cost of everything is going up, not just my textbook fees 
. Air fares are crazy now too, like how am I supposed to afford flights back home after summer holidays? 
And tobacco prices? Really? It's hard enough trying to study for exams without worrying about my parents' health insurance premiums 
. I hope they can keep interest rates steady tho, my savings are lookin good 
...
. Plus, air fares are crazy right now, I'd rather spend my cash on a sick new gaming PC than flying to anywhere