Inflation in the United Kingdom has risen for the first time in five months, reaching 3.4% in December, according to official figures released by the Office for National Statistics. This increase suggests that the Bank of England is likely to maintain interest rates at their current level when its Monetary Policy Committee meets in February.
Details of the Inflation Increase
The annual inflation rate, as measured by the consumer prices index (CPI), climbed from 3.2% in November. This follows a period of decline in October and stagnation over the previous three months. Notably, the December figure exceeded City economists' forecasts, which had predicted a modest rise to 3.3%.
Implications for Monetary Policy
The uptick in inflation indicates that the Bank of England will probably keep interest rates on hold at 3.75% during its February meeting. However, most economists anticipate a potential rate cut in April if price pressures in the UK continue to ease in the coming months. Despite this recent rise, inflation is still projected to fall overall in 2026, having been on a downward trajectory since September's reading of 3.8%.
Economic Context and Government Measures
The Bank of England expects inflation to approach its target of 2% by the middle of this year. Chancellor Rachel Reeves has made addressing the cost of living a central focus, with measures introduced in the autumn budget aimed at reducing inflationary pressures. These include relief on energy bills, prescription charges, and fuel duty, which are expected to contribute to lowering headline inflation this year.
Supporting Employment Data
Recent employment figures released on Tuesday further suggest that inflationary pressures are softening. Wage growth slowed to 4.5% in the three months to November, down from 4.6% in the previous three-month period, indicating a gradual easing in the labour market.
Overall, while the December rise in inflation presents a temporary setback, the broader economic outlook remains focused on a gradual decline towards the Bank of England's target, supported by government interventions and moderating wage growth.
