UK Inflation Falls for Second Month, Raising Hopes of Easing Cost-of-Living Crisis

The UK inflation fell for the second straight month in December, raising hopes that the worst cost-of-living crisis of this era may have begun to subside somewhat. The Office for National Statistics (ONS) said the Consumer Price Index (CPI), Britain’s main gauge of inflation, rose 10.5% in December from a year earlier, but below the 10.7% rise in November and the 11.1% peak in October when energy prices soared.

Inflation remains five times above the Bank of England’s (BoE) 2% target, underscoring the challenges facing the BoE as it tries to stem inflation without causing a recession. The report states that car fuel prices, including the price of clothes and shoes, adjusted down in December.

The BoE has raised interest rates nine times in a row since Dec. 2021 and is likely to raise interest rates another 0.50% to 4% in February, with investors expecting interest rates to peak around 4.50% by mid-year.

The decrease in inflation is a positive sign for the UK economy, as it suggests that the cost of living may be starting to ease. The BoE will likely continue its efforts to stem inflation by raising interest rates, but will have to balance this with the risk of causing a recession.

The inflation report also highlighted that the prices of clothing and footwear fell by 1.8% in December, the largest decline since June 2014, which also helped to bring down the overall rate of inflation.

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