UK inflation unexpectedly rises despite sharp fall in fuel prices

UK inflation unexpectedly rose to 4.0% in December, complicating predictions for the Bank of England to begin cutting interest rates. The Office for National Statistics said annual inflation as measured by the consumer prices index (CPI) rose from the 3.9% reading in November, halting a period of recent sharp declines.

City economists had forecast a modest decline to 3.8%. Nonetheless the development will enable Rishi Sunak to declare victory on his top economic priority, after pledging a year ago to halve the rate in 2023 at a time when it was above 10%. Most economists had expected it to drop by this much anyway, but inflation has proven more persistent than first anticipated.

Lower inflation does not mean prices are coming down, only that they are rising less quickly. Financial markets have been expecting the Bank of England to slash interest rates this year in response to falling inflation and lacklustre economic growth, having driven up borrowing costs to the highest level since the 2008 financial crisis.

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