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Inflation fell unexpectedly in December in a boost for chancellor Rachel Reeves.
The rate of Consumer Prices Index (CPI) inflation fell to 2.5% in December from 2.6% in November, the Office for National Statistics said.
Most analysts had been expecting the inflation rate to remain unchanged at 2.6% last month.
The figure is still above the Bank of England’s 2 per cent target, which means that the central bank is less likely to want to rapidly bring down interest rates, meaning higher costs for borrowers but better rates for savers.
Grant Fitzner, the ONS’s chief economist, said: “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.
“This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023.”
Analysts expect that rising oil prices could start to feed into inflation figures. Higher petrol and diesel costs feed into most other prices as any goods requiring transport or processing will require costlier energy. Brent crude oil has risen 10 per cent in the last month to more than $80 a barrel.
Increases to the National Living Wage which kick in April could also push up prices as shops and factories pay more for wages and have to recoup their costs. The new rate will be £12.21 for workers aged 21 or more.
ChancellorRachel Reeves has come under pressure over her plans for the nation’s finances, with rising yields on government bonds seen as an indicator of weaker market confidence in the economy.
Her plan to increase employers’ national insurance has come under fire from employers, particularly retailers, as
This is a breaking news story…more to follow
