THE UK’s rate of inflation rose slightly to 4% in December, in a surprise increase driven by rising tobacco and booze prices.
The annual rate at which prices are rising went up at the end of last year, figures from the Office for National Statistics (ONS) show.
Inflation has risen again after slowing to 3.9% in November
This is up by 0.1% from 3.9% in November.
It’s the first time the rate has increased since February 2023 and has come as a surprise to many economists.
Most economists had expected the rate to edge lower to 3.8%.
The latest figures show prices are rising and at a slightly faster rate than the month before.
These figures still show Prime Minister Rishi Sunak had further met his promise to half inflation by the end of 2023, a promise he made at the beginning of the year amid the cost of living crisis when the rate had hit 10.7%.
Inflation is a measure of how the price of goods and services has changed over the past year.
Grant Fitzner, chief economist at the ONS, said: “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.
“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.
“Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago.”
Prices of alcohol and tobacco rose by 12.8% in the year to December 2023, compared with a rise of 10.2% in November.
The ONS said the increase in the annual rate was largely the result of the increase in tobacco duty after the government announced higher taxes in their Autumn Statement.
Alcohol made a smaller contribution to the rise in the annual rate, figures show with booze prices falling by 1.6% between November and December last year.
Inflation eased throughout 2023, down from the eye-watering 11.1% seen in October 2022, which was driven by soaring gas and electricity prices.
But the rate is still higher than the Bank of England‘s target rate of 2%.
The Bank hikes interest rates in a bid to control inflation, pushing up borrowing costs for millions of homeowners.
In December it kept interest rates unchanged at 5.25% following the recent drop in the inflation rate.
Chancellor of the Exchequer Jeremy Hunt said: “As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
It comes after official figures released yesterday by the ONS revealed that basic pay is still growing.
Growth in regular pay, excluding bonuses, stood at 6.6% in the three months to November last year.
What does it mean for my money?
Rising inflation indicates that the cost of goods and services is increasing.
Food and non-alcoholic beverage prices rose by 0.5% between November and December 2023, that’s compared with a rise of 1.6% a year ago.
This rise in inflation will come as a blow for mortgage holders and prospective buyers waiting on tenterhooks for interest rate cuts to soften the blow from high mortgage rates.
Alice Haine, personal finance analyst at BestInvest, said: “The surprise inflation rate rise puts a bump in the road for the path towards interest rate cuts, something many forecasters were expecting to happen sooner rather than later this year.
“The data signals that the journey towards the Bank of England’s target inflation reading of 2% may not happen as fast as people hope, particularly if disruption to global trade in the Red Sea and wider Middle East persists for too long.”
Although Ms Haine did point out, that while a slight rise in inflation will come as a worry for households, it’s still a “very different” landscape to the start of 2023 when inflation was at 10.1%.
Inflation figures are used by some mobile and broadband companies to hike prices.
December’s figure in particular is used by many.
Rocio Concha, Which? director of policy and advocacy, said: “This announcement could trigger a new wave of price hikes from big broadband and mobile providers – just 12 months after many firms imposed price increases of more than 14% on customers.
“It would be completely unacceptable for providers to follow BT and inflict another above inflation increase on customers after Ofcom proposed banning this practice, saying it causes substantial consumer harm.”
Rising inflation could mean savers are missing out on real growth and should consider moving their savings, say some experts.
Adam Thrower, head of savings at Shawbrook, said: “Despite an unwanted rise in inflation, there are savings rates on offer that remain above inflation.
“The high rates on savings won’t be that high forever, and as 2024 goes on inflation, and similarly interest rates, could still fall. Savers should be acting now as time could be running out to make the most of the higher rates currently available.”
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