January 18, 2024
3 mins read

Inflation rate surprises with rise to 4% in UK

Financial markets and traders are still expecting it to cut its base rate in 2024 due to the inflation rate falling sharply since peaking at 11.1% in October 2022, which was the highest rate in 40 years…reports Asian Lite News

Expectations that interest rates will be cut this year remain despite a surprise uptick in the UK’s inflation rate last month.

Inflation, which measures how prices rise over time, rose marginally to 4% in December, up from 3.9% in November. Economists had forecast a slight fall, but rises in tobacco and alcohol prices were behind the surprise rise.

But with energy bills predicted to come down in 2024, there are expectations of rate cuts later this year. Spikes in the cost of gas and electricity and food costs, started by Covid lockdowns ending across the world and fuelled further by Russia’s invasion of Ukraine, have put household finances under pressure in recent times.

The Bank of England raised rates in a bid to tackle the pace of price rises in the UK, which has strained the finances of households. The Bank’s rate currently stands at 5.25%, a 15-year high,which has led to higher mortgage rates due to the cost of borrowing money being more expensive. Returns on savings, however, have also gone up.

Financial markets and traders are still expecting it to cut its base rate in 2024 due to the inflation rate falling sharply since peaking at 11.1% in October 2022, which was the highest rate in 40 years.

Inflation has also fallen quicker than the Bank had predicted, but it still remains nearly double its 2% target. But on Wednesday, the markets shifted in their predictions on how much rates would be cut by.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, suggested that the five cuts priced in by investors before the latest inflation figures to bring rates down to 4% this year looked a “stretch”. But he added that energy prices falling further would drive down overall inflation, which he said should give the Bank “confidence” to cut its rate for the first time in May, “or failing that in June.

Ruth Gregory, deputy chief UK economist at Capital Economics, said she expected inflation to fall below the Bank’s 2% target in April, which would leave policymakers “in a position to cut interest rates by June”.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said while the “trend is likely to be downwards” on interest rates, “there are likely to be more knocks on the way, with conflict in the Red Sea raising the risk of supply shortages, which could feed into higher prices”.

Several shipping companies have stopped vessels using the Red Sea – one of the world’s busiest shipping lanes – after attacks by Houthi rebels in Yemen.

Container vessels carrying all sorts of goods and fuel, mainly from Asia to Europe are having to divert around the southern tip of Africa, adding about 10 days onto journeys, which has prompted warnings that consumer prices could rise and drive up inflation again.

“There’s the risk this could end up throwing a real spanner in the works,” added Ms Coles, pointing out that December’s surprise rise in inflation “demonstrates that the path is going to be bumpy”.

Ahead of speculation of the Bank cutting interest rates, mortgage lenders have been announcing reductions in borrowing costs. On Wednesday, Coventry Building Society and Santander announced cuts as competition among lenders continues.

The ONS said tobacco and alcohol prices were up 12.9% in December compared to the month before, with the former rising due to recent tax hikes on the product.

ALSO READ-UK Inflation Eases to 3.9% in November

Previous Story

Missile Strikes Escalate Iran-Pakistan Tensions

Next Story

Palestinian envoy slams UK ‘double standards’ towards Israel

Latest from -Top News

India opens world’s highest rail bridge

Prime Minister Narendra Modi inaugurated the world’s highest railway bridge over the Chenab River in Jammu and Kashmir and flagged off the much-awaited Vande Bharat Express to Srinagar, marking a historic moment

Sisi, MBZ cement ties

UAE and Egypt bolster ties through high-level talks in Abu Dhabi and a landmark cardiac care initiative delivering lifesaving treatment to rural communities The United Arab Emirates and Egypt reaffirmed their strong

‘UAE leads global fight against plastic waste’

UAE accelerates its fight against plastic pollution with a bold single-use plastic ban and expanded environmental policies to safeguard natural ecosystems for future generations The United Arab Emirates continues to lead the

70,000 Gaza kids starve

WFP warned that any further escalation of conflict could paralyse relief operations altogether, deepening the plight of civilians—especially children, the elderly, and vulnerable groups As the humanitarian crisis in Gaza intensifies, the

Prayers on the Mount

The Day of Arafat, considered the pinnacle of the Hajj pilgrimage, witnessed a congregation of believers from around the world As the sun blazed overhead and temperatures climbed to a sweltering 41°C,
Go toTop

Don't Miss

Core inflation in UK has begun to fall in past 2 months, says ONS

Economists attribute particular importance to core inflation, precisely because it

India set to turn the tables on Oppn over price rise, inflation

Despite all the difficulties and global problems, the rate of