Inflation remained broadly stable in the 12 months to December 2024, with the Consumer Prices Index (CPI) recorded at 2.5%, down from 2.6% in the 12 months to November, the latest data from the Office for National Statistics (ONS) has revealed.
On a monthly basis, CPI rose by 0.3% in December 2024, down from 0.4% in December 2023.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.5% in the 12 months to December 2024, unchanged from November.
On a monthly basis, CPIH rose by 0.3% in December 2024, down from 0.4% in December 2023.
The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from restaurants and hotels; the largest upward contribution to both came from transport.
Core CPIH (excluding energy, food, alcohol, and tobacco) rose by 4.2% in the 12 months to December 2024, down from 4.4% in November; the CPIH goods annual rate rose from 0.4% to 0.7%, while the CPIH services annual rate fell from 5.7% to 5.4%.
Core CPI (excluding energy, food, alcohol, and tobacco) rose by 3.2% in the 12 months to December 2024, down from 3.5% in November; the CPI goods annual rate rose from 0.4% to 0.7%, while the CPI services annual rate fell from 5.0% to 4.4%.
Reaction:
Richard Pike, chief sales and marketing officer at Phoebus:
“Even with today’s unexpected drop in inflation, we start 2025 with mixed market indicators; inflation and Government borrowing above target (albeit not unexpected under new Government economic policies), but house prices continuing to rise and interest rates are likely to reduce as the year progresses.
“From a borrower perspective, lowering interest rates and increasing house prices are the headlines that will be heard.
“Positively, this means lending volumes will increase this year and borrowers in financial hardship who are on variable rates will find things easier as rates decrease.
“This should also mean borrowers coming off fixed rates later in the year will not get as much of a payment shock.”
Nicholas Hyett, investment manager at Wealth Club:
“UK inflation came in lower than expected in December, with price increases slowing across broad swathes of the economy including the hospitality sector, clothing and alcohol and tobacco.
“The slowdown will be very welcome for the Government.
“It increases the scope for the Bank of England to cut interest rates, boosting growth and lowering the cost of borrowing.
“That would create a little more financial headroom for the Chancellor and reduce the need for substantial cuts to public spending.
“However, we think there’s a significant risk that inflation kicks off again later in the year.
“Employers are set to start paying higher rates of National Insurance in April, pushing up labour costs.
“That is likely to see prices rise in sectors like hospitality and retail that employ substantial numbers of people and wear margins are already pretty thin.
“That risks sparking an inflationary spiral. It could be a tense few months as we wait and see how things play out.”
Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol:
“UK inflation unexpectedly dipped last month, with core inflation down to 3.2% from 3.5%, a bigger drop than expected.
“These figures come amid rising pressure on public finances, as government borrowing costs have recently reached their highest levels in several years.
“While questions remain about whether the Bank of England will reduce the bank rate in February, it is still be too early to rule out such a move.
“Inflation is expected to remain above the bank of England 2% target for much of 2025, and with the economy in need of a boost, a 0.25% rate cut could still be possible.
“The Bank of England’s cautious approach to rate cuts in 2024 means any potential reduction in February is unlikely to risk adverse effects on long-term inflation trends or expectation.
“A rate cut or a closely split vote, such as 5–4, should not be ruled out.
“Any unanticipated rate reduction could provide an early boost to mortgage rates, similar to the events in August that sparked a mini price race in September.”
Peter Stimson, head of product at MPowered Mortgages:
“Downing Street has been resounding to sighs of relief from Number 11 this morning.
“The improvement in the headline rate of CPI was modest, but its psychological value is amplified by the fact it was unexpected.
“More positive still is the bigger fall in core inflation, which strips out volatile factors like energy and food costs, from 3.5% down to 3.2%.
“Nevertheless CPI is still well above the Bank of England’s 2% target, and provided tomorrow’s GDP figures aren’t horrendous, no-one should expect the Bank to bring forward its next Base Rate cut to February.
“Even with today’s progress on CPI, the Bank is walking a tight rope between the need to leave interest rates high to tame inflation and the desire to cut them to kickstart the flatlining economy.
“The mortgage markets have now priced in just two cuts to the Base Rate in 2025, with at least one likely to be at the end of the year.
“For now, there are bigger fish to fry. Swap rates, the main driver of fixed rate mortgage pricing, have been rising in recent weeks.
“The reasons are complex and varied, but the worry about persistent inflation is a key driver – how the markets react to this morning’s news will be key.
“For now, while today’s inflation figures are welcome, on the mortgage interest rate front things could still get worse before they get better.”
John Phillips, CEO of Just Mortgages and Spicerhaart:
“News of a slight drop in inflation is certainly a surprise and contradicts the expectations of the markets and many analysts.
“This will no doubt be welcome news for ministers – not least the Chancellor who faces considerable pressure as uncertainty rips through the UK financial markets.
“How likely the UK is able to sustain this slowing in inflation is still up for debate, especially given the fallout from the recent Budget and the implications for businesses, as well as the growing prospect of US tariffs days away from Trump’s inauguration.
“All have had an impact on market expectations with rising gilt yields and government borrowing costs.
“The Bank of England stands at a crossroads between managing sticky inflation and supporting economic growth. The latter cannot be understated given growing fears of stagflation.
“A slight reprieve or not, will a surprise slowing of inflation encourage the central bank to act faster than perhaps many are expecting – giving hope to those wanting to see further movement on interest rates.
“Either way, a remedy is clearly needed to help kickstart economic growth. In our world, we have seen a really positive start to the new year with high levels of buyer registrations and mortgage enquiries.
“If the MPC is able to respond to this positive news at its first meeting next month, that will certainly help sustain this.”
