The Office for National Statistics report says that the UK’s inflation rate has dropped from 10.7% in November to 10.5% in December. Despite the fact that this decrease in inflation was as expected by economists, the majority of UK families still faced economic pressure as food and beverage prices increased at their quickest rate since 1977. The cost of eggs, milk and cheese was the primary driver of this increase.
Despite this decrease in inflation, UK policymakers warn that inflationary pressures will continue to persist as the recession is haunting workers. As a result, financial markets expect the Bank of England to raise its main interest rate to 4% from 3.5 % on February 2nd.
HSBC Senior Economist Liz Martins commented on the present situation. He said, “These numbers imply the BoE’s job is not yet done. The lower overall (CPI) rate may minimize the likelihood of a wage-price spiral.
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The inflation rate in the United Kingdom was higher than the rates recorded in the United States (6.5%) and Germany (9.6%). On the other hand, natural gas prices have fallen since last year. The rates are still significantly higher than they were in mid-2021 and this increase continues to impact the economy.
Some economists think CPI is a better way to understand how much prices are going up. In December, the Core CPI stayed the same at 6.3%, which was different from what experts thought it would be. They thought it would go down to 6.2%. The cost of services, like haircuts or car repairs, went up a lot and reached the highest level since March 1992, at 6.8%. This is something that some people at the Bank of England think is a sign that prices will continue to go up.
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Finance Minister Jeremy Hunt stated that high inflation is a “nightmare for family budgets.” It has led to reduced business investment and strikes. He added that “we need to stick to our plan to bring it down.” Despite resistance to pay demands from public sector trade unions, many of whom are taking strike action due to wages rising much more slowly than inflation, and less than the average in the private sector.
RPI, which is sometimes regarded as a benchmark in compensation negotiations, dropped down from 14.0% in November to 13.4% in December. The Bank of England forecasts that the economy will contract this year as inflation squeezes disposable incomes and unemployment rises. Some members of the Monetary Policy Committee believe that it will be a more difficult task to steer inflation back to 2% as wages are rising at the fastest rate in over 20 years.
