top of page

UK Inflation Surprises Higher in December

Unexpectedly, UK inflation reversed its downward trend for the first time in ten months.

The Consumer Prices Index rose to 4% year-on-year in December, a slight increase from the 3.9% recorded in the preceding month, as reported by the ONS on Wednesday. Notably, services inflation witnessed an uptick, while a core index, excluding volatile components like food and energy, remained constant at 5.1%. Services inflation, a focal point for Bank of England officials due to its implications for underlying price pressures, intensified to 6.4% in December, marking a modest rise from 6.3% in November. Conversely, food inflation exhibited a deceleration, descending to 8% from November's 9.2%. However, this was more than counterbalanced by a surge in alcohol and tobacco prices, which soared by 12.8% on a year-over-year basis. This pronounced hike in alcohol and tobacco prices primarily stemmed from tax increments on tobacco, as delineated in the Autumn Statement, the ONS elucidated.

Our Take: The rise was mostly due to special factors and a strong christmas shopping season. We do think inflation is going to decline further in the months to come closer to the 2% target. Inflation measured by Truflation is already below 3% and we expect the official numbers to mirror this shortly. That said, BoE rate cut pricing is still overly optimistic and likely to adjust somewhat following the data.


bottom of page