UK inflation eases for second straight month, signalling worst is over
INFLATION in the UK dipped for a second consecutive month in December 2022, boosting hopes that the worst cost-of-living crisis in a generation may be starting to ease.
Consumer prices in the month rose 10.5 per cent from a year earlier, said the Office for National Statistics (ONS) on Wednesday (Jan 18). This was slower than the 10.7 per cent gain in November 2022.
British Chambers of Commerce head of research David Bharier said the data “suggests the peak has now passed” for inflation. “But this simply means that prices will stabilise at a much higher level than one year ago,” he added.
Still, inflation remains five times higher than the government’s target of 2 per cent. This has touched off a wave of strikes by public sector workers, angry their wages are falling short of the pace of price increases. Prime Minister Rishi Sunak has made halving inflation one of his five key pledges for the year.
The latest figures are the last that Bank of England (BOE) officials will see before their next interest rate decision in February. Some economists have started to talk about an end to the central bank’s tightening cycle, which has delivered the fastest rate rises in three decades.
Yael Selfin, chief economist at KPMG UK, said: “Falling inflation will come as a relief to the BOE’s policymakers, who may see this as an opportunity to slow the pace of further rate rises.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The pound advanced as much as 0.3 per cent to US$1.232, reflecting optimism that the UK economy may not be hit as hard as forecasters had previously thought. The headline inflation rate was in line with economists’ expectations.
Dan Hanson and Ana Andrade of Bloomberg Economics said: “December’s drop in UK inflation is unlikely to deter the majority of BOE policymakers from delivering another 50-basis-point hike next month. Core inflation is proving sticky, which alongside rapid wage growth, elevated expectations and a more resilient economy, suggests price pressure could prove more persistent.”
They predicted that the benchmark rate would peak at 4.3 per cent in March, but said that there was an increasing risk it would need to go higher in order to bring inflation down.
Chancellor of the Exchequer Jeremy Hunt said he has more to do to bring down the cost of living.
“High inflation is a nightmare for family budgets, destroys business investment and leads to strike action, so however tough, we need to stick to our plan to bring it down,” he said.
“While any fall in inflation is welcome, we have a plan to go further.”
The cost of motor fuels fell in December 2022, along with the price of clothing and shoes. Food costs accelerated at the quickest pace since records started in 1989, a worry for low-income families who spend a greater proportion of their income on essentials such as food.
Fuel prices rose 11.5 per cent year on year last month, and dipped 17.2 per cent from the month before. The ONS said prices at the pump fell by £0.083 (S$0.14) per litre between November and December.
Meanwhile, the price of games, toys and hobbies fell 3.8 per cent from November.
Underscoring concerns about persistent inflation – a core measure of prices that excludes energy, food, alcohol and tobacco prices – was unchanged at 6.3 per cent. Inflation in the services sector accelerated to 6.8 per cent.
Marcus Brookes, chief investment officer at Quilter Investors, said high inflation in the services sector could mean that rising prices have gotten stickier than previously thought as higher wage expectations may have become embedded.
“For those hoping that inflation would simply just fall out of the system quickly, that is a scenario that is unlikely to come to fruition,” he said. “Services are now driving inflation, as companies have had to increase wages just to get staff on their books.”
ONS chief economist Grant Fitzner said: “Inflation eased slightly in December, although still at a very high level.”
However, he noted this was “offset by increases in coach and air fares, as well as overnight hotel accommodation”, adding that the spike in food costs came with price rises at shops, cafes and restaurants.
The central bank has raised interest rates nine times in a row since December 2021. It is expected to deliver a further half-point, to 4 per cent, next month. Investors anticipate rates to peak at around 4.5 per cent by the middle of 2023.
Officials are trying to avert a wage-price spiral, where workers bid up salaries because they expect high inflation to persist, prompting firms to raise prices further. While inflation is slowing, it remains close to four-decade highs, and is unlikely to return to target until well into 2024 or beyond.
Hugh Gimber, global market strategist at JPMorgan Asset Management, said: “Today’s inflation print will add to the pressure on UK policymakers to demonstrate that they are serious about tackling price pressures.” BLOOMBERG
Share with us your feedback on BT's products and services
