British inflation rose more than expected in December, driven mainly by higher air fares and tobacco prices. Despite the surprise increase, economists say the UK’s inflation rate is still likely to slow sharply in the months ahead and is not expected to derail interest rate cuts later this year.
Data from the Office for National Statistics showed headline inflation climbing to 3.4 percent in December, up from 3.2 percent in November. This marked the first increase since July and came in slightly above economists’ expectations of a rise to 3.3 percent.
Services inflation, a key measure closely watched by the Bank of England, edged up to 4.5 percent from 4.4 percent, in line with forecasts. Investors largely held steady on their expectations that the central bank will begin cutting interest rates later this year. Although the increase is bigger than expected, it looks more like a temporary bump rather than a sign that inflation is moving off track,” said Adam Deasy, an economist at PwC.
Britain continues to record the highest inflation rate among G7 countries, despite weak economic growth. However, economists expect inflation to ease significantly in the coming months as last year’s increases in energy bills and other government-regulated prices drop out of the annual comparison.
Bank of England Governor Andrew Bailey has previously said inflation could fall close to the central bank’s 2 percent target by April or May. Following the data release, the pound and market expectations for interest rates showed little movement.
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