UK inflation unexpectedly falls to 2.5%
Respite for government after tumultuous week for gilts, but many people still grappling with higher prices overall.
15th January 2025 08:20
by Myron Jobson from interactive investor
Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The surprise fall in inflation offers much-needed respite for the government after a tumultuous week for gilts.
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“Falls in prices at hotels, restaurants, and tobacco contributed to the decline in overall inflation. However, there was some better news beneath the surface. After stripping out volatile food and fuel costs to gain a clearer sense of the underlying trend, core inflation came in at 3.2%, down from 3.5% in November – a bigger drop than expected.
“This reading matters because Bank of England policymakers monitor it to assess inflation’s momentum, and it is one of the key factors in setting interest rates. It could give the UK's central bank some room to cut interest rates. Whether it paves the way for an interest rate cut when the Bank’s rate-setting Monetary Policy Committee meets in three weeks remains to be seen, but the better-than-expected inflation reading may increase the likelihood of it happening.
“While the fall in inflation is good news, many people are still grappling with higher prices overall. It’s important to remember that falling inflation doesn’t mean prices for goods and services are decreasing – it simply means that, on average, prices are rising less quickly. Many households remain under significant pressure from the combined effects of high prices, elevated borrowing costs, and a cooling labour market.”
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