UK Inflation At 3-Month Low

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UK consumer prices grew at the slowest pace in three months in December, largely due to the slowdown in motor fuel inflation, which in turn reduced the squeeze on household spending.

Consumer price inflation slowed for the second straight month in December, to 10.5 percent, as expected, from 10.7 percent in November, figures from the Office for National Statistics revealed Wednesday.

On a monthly basis, consumer prices gained 0.4 percent, the same pace of growth as seen in November, and in line with expectations.

Excluding energy, food, alcoholic beverages and tobacco, core inflation held steady at 6.3 percent, while the rate was forecast to ease to 6.2 percent.

The headline measure is likely to stay roughly where it is for the next couple of months before showing more dramatic signs of easing as we approach Easter, which is when electricity/gas base effects begin to become more favorable, ING economist James Smith said.

ING economist said the jump in services inflation provides ammunition to the Bank of England hawks to push for one final 50 basis point rate hike at the February meeting.

The UK central bank has raised its interest rates over the last nine consecutive meetings, taking the bank rate to 3.50 percent, the highest level since October 2008.

Transport costs gained 6.9 percent annually, the lowest rate since May 2021. The main driver behind the easing in the rate came from motor fuels. Prices of clothing and footwear also rose at a slower pace of 6.4 percent.

Partially offsetting some of the easing inflation rates, the annual rate for restaurants and hotels accelerated to 11.4 percent in December from 10.2 percent in November. The rate was the highest since September 1991.

Similarly, food and non-alcoholic beverage prices surged 16.9 percent, faster than the 16.5 percent increase a month ago.

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