17 December 2025
If you are covering the latest inflation figures from the Office for National Statistics, please find below a comment from Lindsay James, investment strategist at Quilter:
“With Christmas right around the corner, consumers are still having to contend with the UK’s inflation problem just as the shopping list grows and hosting duties commence. Whilst UK inflation may have fallen to 3.2%, down from 3.6%, a decent fall compared to last month, the UK continues to be an outlier compared to European peers. There is little Christmas cheer as inflation remains well above the Bank of England’s 2% target while economic growth grinds to a halt.
“The good news is that energy costs have stabilised compared to last year and are likely to fall further as providers promise to pass on the £150 saving by moving some levies to general taxation. A weaker economy combined with earlier policy measures has also dampened wage growth, a key input into service inflation which has fallen slightly to 4.4%.
“However, it is the Christmas staples of turkeys, alcohol and chocolate that consumers will be caring about the most. Thankfully food and drink made the biggest downward contributions. Grocery inflation will be watched closely as it is an important factor in the Bank of England’s interest rate setting given the influence that food prices have on overall inflation expectations. Today’s news could just give it enough cover to cut more than expected.
“For now, though, an interest rate cut tomorrow does seem to be on the cards following really poor GDP figures last week. There are growing signals that inflation will fall more sharply next year, reflected in the Bank of England’s own projections which has CPI at 2.5% by the end of 2026, a largely mechanical outturn from measures in the Budget such as the rail fare freeze and that removal of certain green levies on household energy bills alongside a falling contribution from fuel. However, these forecasts also suggest flatlining GDP growth and a stable rate of unemployment, with risks now arguably growing on the downside.
“Should the UK slide into recession this could accelerate the downward path of inflation and with it the potential for rate cuts, but at considerable cost not only to the country but also to its political leaders. The Christmas cheer has run out for the UK economy.”
