Inflation unexpectedly fell last month to 2.5 per cent as a dip in hotel prices helped offset a jump in the cost of fuel, official figures revealed today.
The rate of Consumer Prices Index inflation dropped to 2.5 per cent in December from 2.6 per cent in November, according to the Office for National Statistics.
Most analysts including economists polled by Reuters had been expecting the CPI inflation rate to remain unchanged at 2.6 per cent last month.
But December’s headline figure remains above the Bank of England‘s 2 per cent target which has raised concern for economists amid stagnant economic growth.
Grant Fitzner, the ONS‘s chief economist, said today: ‘Inflation eased very slightly as hotel prices dipped this month, but rose a year ago. The cost of tobacco was another downward driver, as prices increased by less than this time last year.
The rate of Consumer Prices Index (CPI) annual inflation fell to 2.5 per cent in December 2024
Financial markets think the Bank of England will cut interest rates by a quarter point next month
Downward contributions to CPIH inflation from five divisions, led by restaurants and hotels
The annual inflation rate for restaurants and hotels was at its lowest level since July 2021
‘This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023.’
The ONS said the largest downward contribution to the monthly change came from restaurants and hotels, while the largest upward contribution came from transport.
On a monthly basis, CPI rose by 0.3 per cent in December 2024, down from 0.4 per cent in December 2023.
The rate of CPI inflation including owner occupiers’ housing costs – known as CPIH – stood at 3.5 per cent in the 12 months to December, unchanged from November.
Chancellor Rachel Reeves said: ‘There is still work to be done to help families across the country with the cost of living.
‘That’s why the Government has taken action to protect working people’s payslips from higher taxes, frozen fuel duty and boosted the national minimum wage.
The annual inflation rate for transport was negative for the fourth consecutive month
CPIH services annual inflation rate now stands at its lowest rate since January 2023
Contribution to CPIH rate from housing and household services largest since September 2023
The contribution from owner occupiers’ housing costs rose for the 12th consecutive month
UK inflation now stands above the estimate for France but below the estimate for Germany
The CPI core annual inflation rate was last lower in September 2021, according to the ONS
‘In our Plan for Change, we were clear that growth is our number one priority to put more money in the pockets of working people. I will fight every day to deliver that growth and improve living standards in every part of the UK.’
The Bank of England – which financial markets expect will cut interest rates by a quarter point to 4.5 per cent on February 6 – forecast in early November that CPI inflation would be 2.5 per cent in December.
Rob Wood and Elliott Jordan-Doak, economists for Pantheon Macroeconomics, said ahead of today’s announcement that they are expecting price pressures to build from 2025 with CPI inflation forecast to reach 3.2 per cent in April.
