UK inflation unexpectedly slows to 2.5% in December

Unlock the Editor’s Digest at no cost

Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.

UK inflation unexpectedly slowed to 2.5 per cent in December because the financial system weakened, easing stress on chancellor Rachel Reeves and clearing the trail for the Financial institution of England to press forward with slicing rates of interest.

The patron value index determine was under November’s 2.6 per cent studying. Analysts had anticipated inflation to carry regular final month.

The info will present some reduction for Reeves, who’s contending with increased borrowing prices which have been fuelled by fears the UK financial system may very well be getting into a interval of stagflation.

On Tuesday, Reeves shrugged off requires her resignation as her Conservative reverse quantity Mel Stride accused her of overseeing a “Shakespearean tragedy” after borrowing prices hit a 16-year excessive.

The Workplace for Nationwide Statistics report comes because the BoE’s Financial Coverage Committee prepares to carry its first assembly of 2025 early subsequent month. Traders are betting that the central financial institution will lower charges by a quarter-point to 4.5 per cent.

Tomasz Wieladek, chief European economist at T Rowe Worth, stated the info was a “clear inexperienced gentle for an additional collection of cuts”.

The BoE has estimated that the financial system stagnated within the remaining quarter of 2024. Enterprise surveys level to weaker confidence and hiring, which might curb inflationary pressures.

Wednesday’s information confirmed that providers inflation, which is carefully watched by the BoE as a gauge of underlying value pressures, slowed sharply to 4.4 per cent from 5 per cent beforehand.

Core inflation, which excludes meals and vitality, dropped to three.2 per cent from 3.5 per cent.

The pound weakened barely after the info launch, down 0.3 per cent on the day at $1.218. Merchants in swaps markets had attributed a 60 per cent probability to a quarter-point lower subsequent month, in response to ranges earlier than the info was launched.

The central financial institution lower its key price to 4.75 per cent in two quarter-point strikes final yr.

Further reporting by Ian Smith