UK inflation has fallen from 2.6% in November, to 2.5% during December last year, according to figures published today (15 January) by the Office for National Statistics (ONS). This came in slightly below consensus forecasts that the UK Consumer Price Index would remain at 2.6% for the month.
Elsewhere, core inflation – which excludes food and energy – fell from 3.5% to 3.2%, which was also below forecasts of 3.4% for the month. Despite falling by more than was broadly expected, inflation remains 50 basis points above the Bank of England’s 2% target.
Paul Noble, CEO of Chetwood Bank, said: “Some good news to start the year for Britons. Many will have approached today’s result with some apprehension, but 2025 can begin on a positive note despite the uncertainty.
“The economic environment is still nowhere near stable, with inflation yo-yoing back and forth from the 2% target. The uncertainty surrounding the budget has not dissipated, but these figures will help to calm nerves nationwide, at least in the short term.
“However, the spectre of public sector wage increases will keep experts guessing as the year goes on, and the Bank of England will be watching CPI closely as they consider the timing of their next rate change.
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Jonny Black, chief commercial and strategy officer at abrdn adviser, said: “This will be welcome news, but it doesn’t mean inflation won’t be something to watch in 2025.
“A volatile economic landscape is making it hard to say for sure where inflation is going to go next, but the Bank of England’s own forecast suggests that it could stay stubbornly above the 2% target for 2025-26.”
Scott Gardner, investment strategist at digital wealth manager, Nutmeg, added that policymakers will be “breathing a small sigh of relief” following the latest data.
“While it might be odd to be welcoming above-target inflation, these results have grown in significance after an unstable start to the year for the pound and government borrowing.
“In the lead up to this release, it was clear that markets could not afford any surprises after a troubling period which saw UK assets hit by fears of low economic growth and persistent inflation. This data will hopefully allay some of those concerns.”
He added the fall in core inflation was particularly positive, and this could fall further still throughout the year due to a cooling jobs market, as well as businesses paring back hiring ambitions following proposed changes to National Insurance business contributions.
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“This data will increase the chances that the Bank of England cuts interest rates in February, though the path remains murky for multiple interest rate cuts this year.”
However, Zara Noakes, global market analyst at JP Morgan Asset Management, warned that “we are not out of the woods yet”, and that “inflation dynamics could prove challenging this year”.
“Inflation was already anticipated to accelerate in 2025 due to unfavourable base effects, but the policies announced in the October Budget have added fuel to the fire,” she said.
“Businesses have signalled that they intend to respond to the hike on employer’s National Insurance contributions by increasing prices to maintain profit margins, while simultaneously reducing hiring. Therefore, while across the Atlantic they are experiencing sticky inflation with strong growth, and on the continent, weaker inflation alongside stagnant growth, here in the UK, we are likely to experience challenges across both fronts.”