UK inflation unexpectedly ticks up in December

UK inflation unexpectedly edged higher in the year to December, driven by a rise in alcohol and tobacco prices, and tempering rate cut expectations.

According to the Office for National Statistics, the consumer price index rose to 4% from 3.9% in November, versus expectations for a drop to 3.8%. This marked the first jump in inflation since February 2023.

Alcohol and tobacco inflation rose to 12.9% from 10.2%.

ONS chief economist Grant Fitzner said: "The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.

"These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.

"Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remains lower than a year ago."

Core inflation - which excludes food and energy - was unchanged at 5.1% in December.

Ruth Gregory, deputy chief UK economist at Capital Economics, said: "Overall, we think that CPI inflation will rise a bit further in January. But favourable base effects will push down inflation in February, March and April. CPI inflation in April will also be dragged down by what is shaping up to be a fall in the Ofgem utility price cap of 10% or more.

"As a result, we still think that inflation will be below the 2% target by April and the Bank of England will be in a position to start cutting interest rates by June."