UK inflation rose by 4% in December, the Office for National Statistics (ONS) reported, thereby outpacing the 3.8% rise predicted by economists. Higher than the 3.9% rise in November, December’s inflation surge was largely driven by a 16% annual rise in tobacco prices, followed by alcohol, which experienced a 9.6% annual increase.
Stubborn inflation has dashed investor hopes that the Bank of England would soon contemplate the introduction of interest rate cuts. “Improving interest rate expectations in recent weeks has led to some forecasters predicting the first cut in the first half of 2024, with lenders slashing mortgage rates as they battle it out to retain their existing clients and attract new business,” Alice Haine, personal finance analyst at Bestinvest explained.
Haine added that this unexpected rapid rise in inflation has come as a blow to mortgage holders and prospective buyers, who had hoped for interest rate cuts to be introduced as a means of driving down mortgage rates.