UK inflation rises by more than expected to 3.4%

[LONDON] British consumer prices rose by more than expected in December but services inflation, closely watched by the Bank of England (BOE), came in as forecasted by analysts, official data showed on Wednesday (Jan 21).

Annual consumer price inflation rose to 3.4 per cent from 3.2 per cent in November, the Office for National Statistics said.

A Reuters poll of economists had shown a median forecast of a rise in consumer price inflation to 3.3 per cent.

Services inflation, watched as a gauge of domestically-driven price pressure, rose to 4.5 per cent in December from 4.4 per cent in November, as expected in the poll.

Inflation in Britain remains the highest in the Group of Seven, despite the country’s sluggish economic growth.

But the pace of price increases is expected to slow sharply in the coming months, as the rises in utility costs and other government-controlled tariffs in 2025 fall out of the annual comparison.

BOE governor Andrew Bailey said inflation is likely to be close to the central bank’s 2 per cent target in April or May.

The pound showed little reaction to the data.

As many economists had predicted, tobacco and airfares were among the biggest contributors to the headline rise in consumer prices in December.

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However, Britain’s consumer price and services inflation rates ran slightly below those projected by the BOE in its November forecasts.

Financial markets are pricing one or possibly two quarter-point interest-rate cuts by the central bank in 2026.

In December, the BOE’s Monetary Policy Committee cut the bank rate to 3.75 per cent, but almost half its members voted for no change due to worries about the persistence of inflation pressure. REUTERS