UK inflation dips but remains close to 40-year high

The prime minister promised to halve inflation this year but there's still a long way to go, Harry Horton reports

The rate of Consumer Prices Index inflation fell to 10.5% in December from 10.7% in November, the Office for National Statistics said.

Falling fuel costs were largely behind the slowdown in the pace of price rises, with average petrol price down by 8.3 pence per litre month-on-month in December.

CPI has eased since the eye-watering 41-year high of 11.1% seen in October, when soaring energy bills pushed up the cost of living.

Chancellor Jeremy Hunt says there is still a 'long way to go in the battle against inflation'

Mr Hunt added: "Any country, anywhere in the world, with inflation over 10% is seeing dangerous levels for the stability of an economy. But for families up and down the country they're seeing food price inflation of nearly 17% and that is causing a massive hike in the weekly shop.

"What that really shows is that for us, and other countries the most important thing is to stick to a plan to bring down inflation. The prime minister has said that he wants to halve inflation in the coming year and for families and businesses it is absolutely essential that we stick to that plan."

The chancellor earlier appeared on a social media video to explain rising inflation with a stack of empty coffee cups.

The clip showing the chancellor ordering a flat white before explaining why costs were rising was criticised over its punctuation, maths and the failure to mention Brexit.

It also omitted the huge amounts of money pumped into the economy during the Covid pandemic or the impact of Liz Truss’ economic policies.

The chancellor held up a cup marked £2.56 and said a year ago a coffee cost “around £2.50” before holding up another with £2.86 on it, which he described as “nearly £3 a cup”.

He declared that high energy prices, the war in Ukraine and the pandemic were the root causes for near record inflation.

Liberal Democrat Treasury Spokesperson Sarah Olney MP said: “The last thing families need right now is a Mr Bean-esque video from the same clueless party that crashed the economy and sent mortgage bills spiralling.

“What’s even more shocking is that Jeremy Hunt airbrushed one of the main causes of economic pain - Liz Truss' disastrous mini-budget that resulted in the biggest tax hike for a generation. How is that supposed to help Britain with inflation?”

London School of Economics media professor Charlie Beckett said the Treasury-produced video was an example of the “Conservatives using public money to produce propaganda”.

While Tory former education secretary Kit Malthouse also questioned the content of the message with the comment: “Money supply?”

It follows new figures that show the price of basic groceries such as butter, milk and cheese went up 30% year-on-year at some supermarkets in December.

While overall food and drink inflation reached 15% in December across the eight major supermarkets, butters and spreads rose by an “astonishing” 29.4%, according to tracking by watchdog Which?

Grant Fitzner, chief economist at the ONS, said: “Inflation eased slightly in December, although still at a very high level, with overall prices rising strongly during the last year as a whole. “Prices at the pump fell notably in December, with the cost of clothing also dropping back slightly.” “Food costs continue to spike, with prices also rising in shops, cafes and restaurants,” he added.

Shadow Chancellor Rachel Reeves. Credit: PA

Shadow chancellor Rachel Reeves said “13 years of wasted opportunities under the Tories have left our economy weak and families worse off” in response to the latest figures.

“We do not have to continue on this path of managed decline,” she said. “Labour will stabilise our economy and get it growing.”

The number is down from a 41-year high of 11.1% recorded in October. Credit: PA

It comes after Britons have been hit by steadily rising inflation throughout 2022 as the cost of living crisis peaked, pushed higher by rocketing energy bills, while essentials have also jumped higher across the board.

Food and drink prices hit 16.4% in November – the highest for 45 years – adding to the strain felt by families across the UK.

But experts believe the marked slowdown in the rate of inflation is unlikely to stop the Bank of England from hiking interest rates once more at its February meeting as it looks to rein in wider cost pressures in the economy, with workers still demanding higher wages.

Samuel Tombs at Pantheon Macroeconomics is forecasting another 50 basis points rise next month, which would take rates from 3.5% to 4%.

Speaking before the figures were announced, he said: “December’s CPI data should enable the MPC (Monetary Policy Committee) to revise down its forecast for CPI inflation materially next month.

“But with year-over-year growth in wages still too rapid, we think it will press on and raise Bank Rate by 50 basis points in February, before standing pat in March, when clearer evidence should have emerged that labour market slack is increasing.”

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