Britons have been warned to brace for interest rates staying high for now after a surprise increase to the inflation rate in the latest figures.
Inflation increased to four percent for the year to December 2023, with the market impacted by increases to duty charges on tobacco.
Independent economist Julian Jessop said: “UK inflation unexpectedly ticked up to four percent in December, with the ‘core’ rate stuck at 5.1 percent, which will dampen hopes of early rate cuts.
“But still much lower than the Bank of England had been forecasting: the November Monetary Policy Report assumed that inflation would average 4.6 percent in 2023 Q4, 4.4 percent in 2024 Q1, and not return to the MPC’s two percent target until 2025 Q4.”
Grant Fitzner, chief economist at the Office for National Statistics (ONS), analysed the latest figures. He said: “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.
“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.
“Meanwhile, the prices of goods leaving factories are little changed over the last few months while the costs of raw materials remain lower than a year ago.”
The Bank of England held the base rate at 5.25 percent in its latest decision with many experts previously predicting it could drop the rate later this year as inflation eases.
ITV political editor, Robert Peston, also said the rise in prices may disuade the central bank from dropping the base rate, which is currently at 5.25 percent.
He said: “The modest rise in CPI services inflation from 6.3 percent to 6.4 percent is likely to deter the Bank of England from cutting interest rates and easing monetary conditions for a few months yet.”
Analysts have warned the latest inflation figures suggest the months ahead will be difficult for cash-strapped Britons.
Nicholas Hyett, investment analyst at Wealth Club, said: “Christmas was particularly expensive for those indulging over the festive break, with alcohol and tobacco the driving forces behind the uptick inflation, although food and non-alcoholic drinks continued to see inflation slow.
“But, while the rise in headline inflation will attract the attention, longer term its the stubbornly high core inflation that is a greater concern.
“Still running at over 5.1 percent, until this comes down the UK will be very vulnerable to global economic shocks that cause spikes in food and energy prices – and we’ve seen all too many of them recently.”
Chancellor of the Exchequer Jeremy Hunt commented: “As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
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