Investing.com – UK inflation was cooler than expected in December, potentially offering the Bank of England opportunity to cut interest rates when it next meets in February.
Annual consumer price inflation fell to 2.5% in December, down from 2.6% in the prior month, but still some way from the Bank of England’s 2.0% medium-term target.
Analysts had expected the CPI to rise 2.6% on an annual basis.
The monthly rate rose 0.3%, more than the small 0.1% increase seen in November, but below the 0.4% growth expected.
Core CPI, which excludes volatile energy and food prices, rose 0.3% on a monthly basis, meaning the annual rate fell to 3.2%, from 3.5% in the prior month.
These figures will come as something of a relief for the Bank of England, as anything higher would have offered the perfect excuse for speculators to continue selling UK government debt, where yields have soared to 16-year highs amid worries about Britain’s fiscal health under the leadership of Chancellor Rachel Reeves.
This would have also piled pressure on the pound, which is pinned near a 14-month trough, with the UK government likely to be forced to cut spending even more to finance its debt.
The next meeting of the Bank of England’s Monetary Policy Committee, the group that determines the country’s base rate, is in early February.
“Recent events do give me greater conviction that the Bank of England will not sit on the sidelines,” said analysts at UBS in a note. “Higher borrowing costs, which are flowing into the real economy, are tightening financial conditions. Inflation pressures are present but fading, so a cut in February, with more later this year, remains the base case.”
