The UK’s inflation rate saw an unexpected decline in December, marking its first drop in three months. According to the Office for National Statistics (ONS), consumer prices increased by 2.5% in the year to December, a slight decrease from the 2.6% recorded in November.
Although inflation remains above the Bank of England’s target, the latest figures have fuelled speculation that an interest rate cut could be on the horizon. This development also provides some relief for Chancellor Rachel Reeves, who has recently faced criticism over economic challenges, including a weakened pound and rising government borrowing costs.
Following the announcement, government borrowing costs returned to levels seen the previous week, and the pound showed modest improvement, reaching $1.22 as traders responded to the inflation news.
The drop in inflation was partly driven by slowing price increases in restaurants and a decline in hotel costs.
Additionally, slower price rises for tobacco products, including cigarettes and vape refills, along with clothing, contributed to the overall reduction. However, these gains were partially offset by rising prices in other areas, notably fuel and second-hand cars, according to Grant Fitzner, chief economist at the ONS.
Kate Nicholls, Chief Executive of UKHospitality, said: “While it’s positive there has been a slight dip in inflation, there has not been enough movement to calm the fears among hospitality businesses that we’re entering a troubling period for the economy.
“This will only get worse as we head towards April, when £3.4 billion of costs will be levelled on the hospitality sector. These damaging costs are forcing businesses to slash investment, cut jobs and raise prices – none of which will drive economic growth or help reduce inflation.
“We desperately need to grow away from stagflation, and that starts with rethinking the planned changes to employer National Insurance Contributions.
“A pause will mitigate the negative impacts on businesses, team members and the economy that these changes will bring, and it will give the sector some breathing space to work back towards investment and growth.”