Inflation up but interest rate cuts may still come


Inflation figures for December show a small increase to 4% from 3.9% in November.

Economists had expected inflation to fall slightly, but a 12.9% increase in prices for alcohol and tobacco caused the corresponding rise.

The Bank of England is still expected to cut the base rate later in the year though. This is because energy bills are likely to drop in 2024 and inflation has fallen from its peak of 11.1% in October 2022 more quickly than the Bank predicted.

The Bank’s target is 2%, so December’s inflation figure of 4% is still twice that level.

Deputy chief UK economist at Capital Economics, Ruth Gregory, has been quoted as saying that she expects inflation to have fallen below 2% by April and feels that interest rates could be cut by June. Other experts have said that a cut could come as soon as May.

The Bank of England’s base rate is currently 5.25%.

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