TOBACCO AND ALCOHOL FUEL SURPRISE INFLATION RISE – Annual rate of CPI sped up for the first time in 10 months in December
The annual rate of consumer price inflation (CPI) sped up for the first time in 10 months in December following an increase in tobacco duty, increasing to 4.0% from a more-than-two-year low of 3.9% recorded in November.
The figures bucked expectations among economists for a further decline in CPI to 3.8% and led to a jump in sterling as investors scaled back their expectations for a cut in interest rates by the Bank of England in May.
The BoE raised interest rates 14 times between December 2021 and August 2023, taking rates to a 15-year high of 5.25% after inflation surged to a 41-year high of 11.1% in late 2022 and proved slow to fall thereafter.
However, inflation began to fall faster than expected in the latter months of last year, leading many economists to predict that it would be back at the BoE’s 2% target by April or May this year, around 18 months sooner than the BoE was predicting.
Britain’s Office for National Statistics said December’s increase in inflation was driven by a rise in tobacco duty that took effect in late November.