Inflation DROPS to 2.5% in win for Rachel Reeves amid market turmoil
Britons share thoughts over the impact of inflation
GB NEWS
Inflation in the UK has falling slightly in a win for consumers, according to the latest figures from the Office for National Statistics (ONS). The consumer price index (CPI) rate for the 12 months to December 2024 dropped to 2.5 per cent, down from 2.6 per cent the month before.
Britons have been saddled with inflation-hiked prices amid the ongoing cost of living crisis with today's figures likely to ease financial concern for millions of households across the country.
The news places is good news for Chancellor Rachel Reeves, who is under scrutiny over the Autumn Budget decisions which many have blamed for gilt yields rising over the past week.
Businesses have reacted negatively to Labour's decision to raise the rate paid on National Insurance contributions for employers with many claiming it will raise prices and cost jobs.
However, the latest ONS figures suggest prices will not be rising as much as expected in the near future, despite ongoing concerns over the Bank of England interest rate.
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The Chancellor has been handed a reprieve following the latest inflation figures
GETTY / PAAccording to the ONS, the largest downward contribution to the monthly change in the CPI annual rates came from restaurants and hotels, while the largest upward contribution to both came from transport.
Over the period, core CPI increased by 3.2 per cent, which is down from 3.5 per cent. in November. Furthermore, the CPI goods annual rate rose from 0.4 per cent to 0.7 per cent, while the CPI services annual rate fell from five per cent to 4.4 per cent.
Joe Nellis, an economic adviser to accountancy firm MHA, noted today's figures are "welcome news" for the country and the Chancellor but warned inflation is still "dogging the economy".
He explained: "In light of the recent backlash from the financial markets against the UK, it is important to note that alongside international and domestic political uncertainty, as well as a sluggish UK economy, sticky inflation is currently contributing to an increase in UK bond yields - and hence up the cost of Government borrowing.
Inflation is falling in the UK
GETTY"As inflation erodes the real value of Government debt, the price of borrowing (bond yields) increases to cover this. With this, the threat of the UK falling into a debt spiral looms large."
Nick Saunders, the CEO of stock trading platform Webull UK, added: "A failure to get inflation down to two per cent is going to make it very hard for the bank to cut interest rates in the medium term, especially given the backdrop of a rising UK bond yields.
"A depressed pound will add to inflationary pressure, particularly in energy prices, so it’s no surprise that the market is no longer expecting a sequence of rate cuts in 2025. It’s going to be a tough start to the year, although a small drop to 2.5 per cent will give the Chancellor some breathing space.”
In response to rising inflation, the Bank of England's Monetary Policy Committee (MPC) has voted to raise the nation's base rate, reaching a height of 5.25 per cent last year.
Inflation has pushed the price of goods and services up GETTY With the CPI rate falling closer to the central bank's desired target of two per cent, committee members have voted to cut rates to 4.75 per cent. However, the base rate has remained at this level for months.
Analysts are pricing in at least two more reductions to the base rate from the Bank of England in 2025, which will have an impact deals made available to savers, debt borrowers and Britons who have a mortgage.
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Banks and building societies have been responding to changes in the base rate from the Bank of England GETTY Paul Noble, the CEO of Chetwood Bank, said: “Some good news to start the year for Britons. Many will have approached today’s result with some apprehension, but 2025 can begin on a positive note despite the uncertainty.
"The economic environment is still nowhere near stable, with inflation yo-yoing back and forth from the two per cent target. The uncertainty surrounding the budget has not dissipated, but these figures will help to calm nerves nationwide, at least in the short term.
"However, the spectre of public sector wage increases will keep experts guessing as the year goes on, and the Bank of England will be watching CPI closely as they consider the timing of their next rate change.
"The one thing that consumers can control is their financial future, and it’s more important than ever to be proactive in seeking out the best savings opportunities. Financial institutions must support them by providing accessible solutions and products that add real value."
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