In December, the UK unexpectedly recorded a 4% rise in consumer prices. Financial markets now expect the Bank of England to start cutting interest rates later than previously expected.
British inflation rose surprisingly in December. Consumer prices rose by an average of 4.0% compared to the same month last year, the ONS statistics office in London reported on Wednesday. In November, inflation eased to 3.9%, the lowest level in more than two years. Economists polled by Reuters expect a further decline to 3.8%. However, food and tobacco like clothing, airline tickets and entertainment became significantly more expensive following the tax increase.
Financial markets now expect the Bank of England to start cutting interest rates later than previously expected. It raised its key interest rate a total of 14 times between December 2021 and August 2023, to a 15-year high of 5.25%. Monetary authorities intend to use it to combat inflation, which has risen to a 41-year high of 11.1% by the end of 2022. They have an inflation target of 2%.
The inflation issue may also have an impact on the results of the parliamentary elections expected this year. “Inflation is not coming down in a straight line, but our plan is working,” Finance Minister Jeremy Hunt said. His potential successor, Rachel Reeves of the leading opposition Labor party in the poll, said many families had become financially worse off during the last 14 years of Conservative-led government.
Meanwhile, the decline in British house prices continues to accelerate: in November they fell more sharply than in twelve years. They are down 2.1% compared to November 2022, as reported by the Statistics Office. It was still minus 1.3% in October. The largest decline occurred in London. In the capital, apartment prices fell by 6.0%. Recently, however, there have been increasing signs of stability as mortgage interest rates have eased slightly and demand has picked up again.