17 January 2024
If you are covering the latest UK inflation data, please see the following comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“UK inflation came in at 4.0% in December, joining the US and Europe with a disappointing uptick compared to the 3.9% level seen in November. Though this increase does not take the figure drastically higher, it shows that the UK’s battle against inflation is not yet over and the situation remains precarious. The festive season saw alcohol and tobacco lead the way as drivers of this uptick, while the largest downward contribution came from food and non-alcoholic beverages.
“Though inflation has risen, the latest GDP figure left the UK teetering on the edge of a technical recession and the labour market is showing signs of weakening, so there is no doubt that the Bank of England will continue to face increasing pressure to begin cutting rates. What’s more, the falls in inflation prior to December have also started to take effect on pay, with total pay growth slowing more than expected to 6.5% in November, down from 7.2% in October, which will only exacerbate this further.
“Not only has the headline rate of inflation seen an unwanted uptick, but Core CPI (excluding energy, food, alcohol and tobacco) still remains relatively high. Core inflation has been falling much more gradually than the headline figure and now sits at 5.1%, holding steady at the same rate as November. Progress here is likely to be slow, so the Bank may resist making rate cuts until it returns to a more palatable level.
“Significant global headwinds also remain, not least the events in the Red Sea which could have a considerable impact on consumer prices in the coming weeks. So, whether the Bank buckles under the pressure and begins cutting rates sooner than it might have originally liked remains to be seen.”
