Good news for the Chancellor as inflation down to 2.5 per cent in December 15 January 2025 CPI inflation dropped to 2.5 per cent in December 2024 – slightly lower than market expectations with indicators pointing to a welcome fall in underlying inflationary pressures – ending a run of bad news about the economy that has pushed up UK interest rates and increased pressure on the Chancellor. Underneath the headline rate, which fell 0.1 percentage point from 2.6 per cent in November, there were chunky falls in measures of underlying inflation with services inflation down from 5.0 per cent in November to 4.4 per cent in December (lower than the Bank of England’s latest forecast) and core inflation down from 3.5 per cent in November to 3.2 per cent in December (a larger fall than markets expected). Overall, prices rose by 2.5 per cent in 2024 – a lot less than the 7.3 per cent rise in 2023 but still higher than in all but 10 of the past 30 years, and remains well above the Bank of England’s 2 per cent target. This welcome fall in the rate of inflation has delivered some respite from the run of bad news on the UK economy which has been putting upward pressure interest rates. UK inflation has been sticky but, with services and core inflation both surprising on the downside, this gives the Bank of England more room to cut interest rates in the coming months. James Smith, Research Director at the Resolution Foundation, said: “The rate of inflation has dropped to 2.5 per cent, in part due to chunky falls in services and core inflation – bolstering the Government’s hopes for faster cuts to interest rates to relieve some of the pressure on the fiscal outlook. “While inflation remains above the Bank of England’s 2 per cent target, the welcome fall in underlying inflationary pressures in December provides some respite from a run of recent data suggesting the UK is suffering from ‘stagflation’.”
