UK inflation fell to 10.5% in December, and food prices rose

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UK consumer price index falls to 10.5% in December from 10.7% in November Food and drink prices rise at fastest rate since 1977 Service prices rise at fastest rate since 1992 Markets see BoE raise rates to 4% in February Finance minister says inflation high is a “nightmare”

LONDON (Reuters) – British inflation eased last month after hitting a 41-year high in October, providing some relief for the Bank of England, but pressure on households remained intense with food and drink prices rising at the fastest pace since then. 1977.

The Office for National Statistics said on Wednesday that annual consumer price inflation fell to 10.5 percent in December from 10.7 percent in November, a drop in line with economists’ expectations in a Reuters poll.

However, while lower prices for petrol and clothing lowered the headline rate, the cost of food and non-alcoholic beverages was 16.8% higher than a year earlier, the largest increase since September 1977, led by eggs, milk and cheese.

The Bank of England predicted in November that the core consumer price index would decline from a peak of 11.1% last October to around 5% by the end of 2023 as energy prices stabilize.

But policymakers have warned of continued upward pressure on inflation from the charged jobs market and other factors. Financial markets expect the central bank to raise its key interest rate to 4% on February 2 from 3.5%.

“A lower general rate (CPI) … may reduce the risks of a wage and price spiral, but these figures suggest the BoE’s job is far from over,” said Liz Martins, chief economist at HSBC.

The pound strengthened against the US dollar after the data.

British inflation in December was higher than the 6.5% annual rate recorded for the United States and 9.6% in Germany.

While natural gas prices are lower than they were a year ago, before the Russian invasion of Ukraine, they are still several times higher than they were in mid-2021, and the impact of the increase is still feeding into the economy.

Core CPI — which excludes energy, food, alcohol and tobacco, and which some economists consider a better guide to underlying inflation trends — was unchanged at 6.3% in December, contrary to economists’ expectations of a decline to 6.2%.

[1/3] An employee walks inside a Sainsbury’s supermarket in Richmond, west London, Britain, June 27, 2022. REUTERS/Henry Nicholls

Services inflation – which some BoE officials see as pointing to more persistent inflationary pressures and a secondary effect of rising energy costs and wages – rose to the highest level since March 1992 at 6.8%.

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Finance minister Jeremy Hunt said after the figures were released that high inflation was a “nightmare for family budgets”, hurting business investment and prompting strikes.

“Whatever the difficulty, we need to stick to our plan to reduce it,” he said.

Hunt resisted wage demands from public sector trade unions, many of which are taking strike action because their members’ wages rise much more slowly than inflation and at a lower rate than average in the private sector.

Retail price inflation (RPI), used as a benchmark in some wage talks, was 13.4% in December, down from 14.0% in November.

Britain’s economy is set to contract this year as inflation pressures disposable income and the Bank of England expects the unemployment rate to rise, factors that some BoE policymakers said mean little or no further tightening is likely to be needed. .

Other MPC members think it may be more difficult to redirect inflation back to 2% as wages rise at their fastest rate in more than 20 years.

“Evidence this week suggests that bold action is needed,” said Hugh Gember, global market analyst at JPMorgan Asset Management, which expects the Bank of England to raise interest rates to at least 4.5% before stopping.

(Reporting by David Milliken). Editing by William James, Kate Holton, and Kathryn Evans

Our Standards: The Thomson Reuters Trust Principles.

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