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UK inflation unexpectedly eased to 2.5 percent in December as the economy weakened, easing pressure on chancellor Rachel Reeves and clearing the way for the Bank of England to push ahead with interest rate cuts.
The consumer price index was 2.6 percent below November's reading. Analysts had expected a rise in prices last month.
The data will provide relief to Reeves, who is grappling with high borrowing costs which have been fueled by fears that the UK economy could be heading into recession.
Report, from the Office for National StatisticsIt comes as the BoE's Monetary Policy Committee prepares to hold its first meeting in 2025 next month. Investors are betting that the central bank will cut rates by a quarter-point to 4.5 percent.
Tomasz Wieladek, European economist at T Rowe Price, said the data was “a clear green light for another series of cuts”.
I The BoE He predicted that the economy would stabilize in the last quarter of 2024. Business surveys point to weak confidence and employment, which may offset inflationary pressures.
“There is still work to be done to help families across the country with the cost of living,” Reeves said Wednesday. That is why the government has taken measures to protect the payslips of working people from higher taxes, frozen fuel taxes and raising the national minimum wage.
Wednesday's data showed that services inflationwhich is closely watched by the BoE as a measure of underlying price pressures, is slowing to 4.4 percent from 5 percent previously. The services inflation reading was well below the 4.9 percent reading expected by economists.
Core inflation, which excludes food and energy, fell to 3.2 percent from 3.5 percent.
The pound weakened slightly after the release of the data, down 0.3 percent on the day at $1.218. Traders in the swaps market have reported a 60 percent chance of a quarter-point cut next month, according to standards before the data was released.
Zara Nokes, analyst at JPMorgan Asset Management, said: “After a difficult start to the year, today's rate of inflation will provide some relief to Chancellor Reeves. The sticky press could have caused more volatility in the gold market.”
The central bank cut its key rate to 4.75 percent in two quarters last year.
Additional reporting by Ian Smith