Inflation dips to 2.5 per cent in December, easing some pressure on government

Britain's annual inflation rate unexpectedly fell to 2.5 per cent last month, official data showed Wednesday, easing some pressure on the Labour government faced with economic unrest.

Analysts had forecast no change in the Consumer Prices Index (CPI) from the 2.6 percent figure in November.

The latest reading from the Office for National Statistics (ONS) comes one day after chancellor Rachel Reeves was forced to defend the government's handling of the economy following a recent sharp runup in state borrowing costs and a hefty drop in the pound.

"Inflation eased very slightly as hotel prices dipped" after rising in December 2023, noted Grant Fitzner, chief ONS economist.

"The cost of tobacco was another downward driver, as prices increased" less than a year earlier, he added.

"This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023," Fitzner said in the release.

Wednesday's data showed also that on a monthly basis, CPI rose 0.3 percent in December, down from 0.4 percent a year earlier.

The ONS added that core CPI - excluding energy, food, alcohol and tobacco - increased by 3.2 percent in the 12 months to December, down from 3.5 percent in November.

Reeves told parliament Tuesday that the government needed to "go further and faster" in its bid to kickstart economic growth in the face of UK markets turmoil.

The chancellor of the exchequer, in the role for just over six months following Labour's election win, faced a renewed call to resign by the main opposition Conservative party during a heated exchange.

Prime Minister Keir Starmer has given his full backing to Reeves.

UK 10-year bond yields, a key indicator of market confidence, reached last week the highest level since the 2008 global financial crisis.

That puts fiscal pressure on the government and could force it to cut spending and further hike taxes.

Reeves' maiden budget in October included tax rises for businesses - a decision blamed for Britain struggling to grow its economy in recent months.