UK CPI inflation fell to 10.5% in December, down from 10.7% in November, as the UK joins other major economies in experiencing falling rates of inflation.
Inflation in the UK fell for the second time in a row after declining from 11.1% in October, a trend that could see UK inflation drop below 10% in the coming months.
Although there will be relief inflation rates are falling, price growth still remains stubbornly high and will be eroding household spending. Despite headline inflation rates falling, people in the UK will continue to pay higher prices for their food and energy.
“Whilst prices at the pump have been falling, now back to levels last seen in February 2022, a lot of the important stuff is still going up. Energy costs, despite the government shaped cushion that’s in place, are still making a big impact on our lives and as temperatures plummet our energy saving measures have done all they can to limit bill rises,” said Danni Hewson, AJ Bell financial analyst.
“Then there’s food. The Christmas shop had to be spread out over a couple months just to make all those treats vaguely affordable. Chocolate and sweets that are a staple of most homes over the festive season were among those items in our basket with a much bigger price tag than we’re used to. And other less seasonal staples like milk, cheese and eggs are still driving prices up at a rate that will keep making life difficult for many people.”
In addition, inflation rates above 10% will leave the Bank of England little option but to continue with further rates hikes in the coming months.
“Sticky inflation means the market is still expecting more interest rate rises in the near future, from 3.5% to around 4.5%. We could see a rise of 0.5 points when the MPC meets in February. However, as times get tougher further down the line, they’re expected to make cuts. It means that fixed rates for both mortgages and savings may well have peaked,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.