UK inflation rate doubled in December despite struggling economy
The inflation rate doubled last month as prices ticked higher in the run-up to Christmas.
According to data from the Office for National Statistics (ONS), prices in December were up 0.6% on a year earlier.
The inflation rate remains low by historical standards, but most analysts had expected a rise of 0.5%. The figure marks an uptick in the pace of price increases recorded by the ONS, with November seeing only a 0.3% year-on-year rise.
Higher prices for transport, recreation and culture were flagged by statisticians, despite food and drink prices falling.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, had predicted the 0.6% increase.
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“Granted, far fewer people travelled this Christmas than usual. But airlines and ferry companies have reduced capacity, shoring up prices,” he wrote on Tuesday.
The ONS added: “Despite the travel restrictions in place in December, prices for air fares followed their usual seasonal pattern, with price increases between November and December 2020.”
Petrol prices rose 1.5p a litre month to month, and clothing and footwear prices nudged 0.1% higher.
The retail industry’s own figures showed a bigger rise in clothing prices in December, bucking a seasonal trend of falling costs, as retailers battled to stay afloat and Black Friday sales ended.
The modest gains in ‘recreation and culture’ prices reflect no repeat of the previous year’s discounting on laptops and software, and small increases in video game costs.
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On a month-to-month basis, consumer prices overall were up 0.3% compared to November, when they had dipped 0.1% a month earlier.
Michael Hewson, chief market analyst at CMC Markets UK, said the latest figures were “perhaps signalling a slow rise in prices.” But he said price data for producers suggested “underlying inflation [is] still looking fairly benign.”
Tombs said rising inflation weakened the case for a further interest rate cut by the Bank of England’s monetary policy committee (MPC).
But he predicted goods prices may come under pressure later this year as easing lockdown restrictions allow consumers to spend on services instead. Higher unemployment may also put further downward pressure on prices and wages.
“The MPC will be under no pressure even to hint at the start of a hiking cycle this year, or in 2022,” he said.
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