Inflation on the rise
The UK's inflation rate increased slightly to 4% in December, surprising many economists. This is up from 3.9% in November and is the highest rate since October 2021. The latest figures show that prices are rising at a slightly faster rate than the previous month.
Promises and progress
Despite the increase, these figures indicate that Prime Minister Rishi Sunak is making progress towards his promise to halve inflation by the end of 2023. This promise was made in response to the cost of living crisis when the rate had reached 10.7%.
Factors affecting inflation
Grant Fitzner, chief economist at the Office for National Statistics (ONS), explained that the slight increase in inflation was due to higher tobacco prices caused by recent duty increases. However, food inflation has fallen compared to last year, offsetting some of the overall increase. Additionally, factory prices have remained stable and the cost of raw materials is lower than it was a year ago.
Bank of England's target
The current inflation rate of 4% is higher than the Bank of England's target rate of 2%. In response, the Bank has raised interest rates to control inflation, leading to higher borrowing costs for homeowners. In December, interest rates were kept unchanged at 5.25% following a drop in the inflation rate.
Government response
Chancellor of the Exchequer Jeremy Hunt emphasized the importance of sticking to the government's plan to control borrowing and boost growth through competitive tax levels. He pointed to examples in the US, France, and Germany where inflation has not fallen in a straight line but has been managed successfully.
Impact on consumers
Inflation figures are often used by mobile and broadband companies as a basis for price hikes. December's inflation rate, in particular, is influential in this regard. However, there is some positive news as official figures released by the ONS show that basic pay is still growing, with regular pay (excluding bonuses) increasing by 6.6% in the three months leading up to November 2023.
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