UK inflation unexpectedly rises in December

Britain’s annual rate of consumer price inflation rose for the first time in 10 months in December, reaching 4.0% compared to a more-than-two-year low of 3.9% in November.

The increase exceeded the consensus forecast for a 3.8% rise.

A fresh rise in tobacco duty was identified as the main contributor to the December inflation increase.

Core inflation, which excludes volatile elements like food, energy, alcohol, and tobacco prices, remained unchanged at 5.1% in December.

Services inflation increased to 6.4% in December from 6.3% in November

The rise in Britain’s inflation rate followed similar increases in the euro zone and the United States in December.

The recent rise in inflation may add to concerns at the Bank of England, which had raised interest rates to a 15-year high of 5.25% in August.

In November, the central bank forecasted that it would take until late 2025 to return inflation to its 2% target. However, some economists now suggest this could happen as soon as April or May, partly due to a slide in wholesale gas prices.

The BoE looks at both core Consumer Price Index  and services inflation as a better guide to underlying price pressures in the economy, especially those influenced by rapid wage growth.

Economic data from Tuesday revealed that average weekly earnings, excluding bonuses, rose by an annual 6.6% in the three months to the end of November.

Although this is the slowest increase in nearly a year, it remains double the pace the Bank of England views as consistent with achieving sustainable inflation at 2%.