UK inflation moved slightly higher in December, the first rise in 10 months, the Office for National Statistics has said.
The Consumer Prices Index rose by 4 per cent in the 12 months to December, up from 3.9 per cent in November, and the first time the rate has increased since February last year, the ONS said.
Some economists had expected a fall to 3.8 per cent.
UK Chancellor Jeremy Hunt said that “inflation does not fall in a straight line, but our plan is working and we should stick to it”.
Meanwhile, core inflation, which does not include food and energy prices, was 5.1 per cent in December, the same reading as the month before.
The largest downwards pressure on inflation came from food and beverages, where the annual rate was 8 per cent in December, down from 9.2 per cent in November.
Food price inflation has eased for nine months in a row and is now at its lowest rate since April 2022, having hit a 45-year high of 19.2 per cent in March last year.
“While still sky high, this is heading in the right direction,” said Jessica Moulton, senior partner at McKinsey & Company.
“This will be welcomed by consumers, especially with a big decrease in some staples like milk, eggs and cheese now at 3.3 per cent, compared to 30.2 per cent a year ago.”
The rise in the CPI reading and the continuing stickiness of core inflation is expected to dampen hopes of a cut to interest rates, which have been at 5.25 per cent since August.
While the rise in the headline rate of inflation does not change most economic outlooks in a major way, it is “horrible news” for those UK households and individuals that have been struggling under the cost-of-living crisis for some time now, according to Sarah Coles, head of personal finance at Hargreaves Lansdown.
“The new HL Savings & Resilience Barometer shows the cost of living has increased 18.4 per cent in the past two years.
“Those whose budgets are on a knife edge are holding their breath for a slowing of inflation, so the fact it’s proving stubborn will be a bitter blow.”
Red Sea supply chain disruption
Alice Haine, personal finance analyst at Bestinvest, said the rise in headline inflation raised concerns for households that “the worst of the cost-of-living crisis is not fully in the rear-view mirror”.
“The surprise data signals that the journey towards the Bank of England’s target inflation reading of 2 per cent may not happen as fast as people hope, particularly if disruption to global trade in the Red Sea and wider Middle East persists for too long,” she said.
“How heavily this will impact the UK economy and the fight against price rises remains to be seen, but there are never any guarantees that inflation will behave as hoped.”
Any effect from the disruption in the Red Sea and the ensuing strain on global supply chains will not feed through to the UK's inflation figures until next month at the earliest, said economist Dr Mohamed Aly El Erian, president at Queen's College, Cambridge.
“The disruption to Red Sea navigation will not have anywhere near the same impact as either the Covid supply chain shock or the energy crisis caused by Russia’s invasion of Ukraine,” he told The National.
“If it persists, however, it will result in higher inflation and lower growth compared to what would have prevailed otherwise. It will also have a dampening effect on growth at the margin.”
The inflation readings come a day after earnings figures showed a rise of 6.6 per cent in the three months to the end of November, the slowest increase in about a year but roughly double the pace the Bank of England believes is necessary to get inflation back to its 2 per cent target.
“When the CPI figures are viewed in line with yesterday’s wages numbers which, despite continuing to soften, remain at levels that will be of concern to the Bank of England, it is hard to see anything at the moment that might point to the BoE moving away from its 'higher for longer' message,” said Stuart Cole, chief macro economist at Equiti Capital.
“Indeed, the concern may be that the falls we have seen so far in CPI are more the result of declines in global prices and energy costs rather than any underlying reduction in domestic inflationary pressures, suggesting the toughest part of the battle in bringing CPI back to target is still to be fought.”
