Volkswacht Bodensee - UK inflation dips, easing some pressure on government

Analysts had forecast no change in the Consumer Prices Index (CPI) from the 2.6 percent figure in November.

The latest reading from the Office for National Statistics (ONS) comes one day after finance minister Rachel Reeves was forced to defend the government's handling of the economy following a recent sharp runup in state borrowing costs and a hefty drop in the pound.

Reacting to the data, Reeves said "there is still work to be done to help families across the country with the cost of living".

"I will fight every day to deliver that growth and improve living standards in every part of the UK," she added.

Britons remain hampered by high interest rates and elevated energy bills despite the annual inflation rate retreating from a four-decade peak of above 11 percent in October 2022.

Last month, "inflation eased very slightly as hotel prices dipped" after rising in December 2023, noted chief ONS economist Grant Fitzner.

"The cost of tobacco was another downward driver, as prices increased" less than a year earlier, he added.

"This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023," Fitzner said.

Wednesday's data showed also that on a monthly basis, CPI rose 0.3 percent in December, down from 0.4 percent a year earlier.

The ONS added that core CPI -- excluding energy, food, alcohol and tobacco -- increased by 3.2 percent in the 12 months to December, down from 3.5 percent in November.

- Pound higher -

London's benchmark FTSE 100 index opened up 0.7 percent following the data and the British pound was higher versus the dollar and euro.

Reeves told parliament Tuesday that the government needed to "go further and faster" in its bid to kickstart economic growth in the face of UK markets turmoil.

The chancellor of the exchequer, in the role for just over six months following Labour's election win, faced a renewed call to resign by the main opposition Conservative party during a heated exchange.

Prime Minister Keir Starmer has given his full backing to Reeves.

UK 10-year bond yields, a key indicator of market confidence, reached last week the highest level since the 2008 global financial crisis.

That puts fiscal pressure on the government and could force it to cut spending and further hike taxes.

Reeves' maiden budget in October included tax rises for businesses -- a decision blamed for Britain struggling to grow its economy in recent months.

- Bank of England -

Despite falling, Britain's annual inflation rate remains above the Bank of England's 2.0-percent target rate, slowing the pace of its interest-rate cuts.

The BoE reduced borrowing costs in August for the first time since early 2020, from a 16-year high of 5.25 percent as UK inflation returned to normal levels.

It cut further in November and analysts are forecasting that the next reduction will occur next month.

C.Kreuzer--VB