Good news on inflation could be quickly erased by tax rises and Trump turbulence ahead
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A fall in December's CPI inflation of 0.1 percentage points to 2.5% is marginal, but by being below expectations it delivered an above-expectations boost to Rachel Reeves. The chancellor has been under intense scrutiny for the last week as UK borrowing costs have risen (in line with US and European peers) and the value of the pound has fallen.
While this has presented a political headache rather than the economic crisis presented by the opposition, it is no less real for a government that has made growth, stability and fiscal probity a priority. Money blog: What inflation drop means for you and economy.
Strikingly the moves against the UK came unprompted by any fresh data to trigger a lack of confidence in the bond and currency markets. This week that changes, with December's inflation figures today followed on Thursday by GDP numbers for November. In that context, this morning's surprise on the upside will have been welcomed at the Treasury, particularly when the underlying numbers are analysed.
Good news from underlying figures. Core inflation, which strips out fuel and other volatile elements, fell to 3.2% from 3.5% in November, and services inflation, a key metric for the Bank of England's calculations, dropped 0.6% in the month to 4.4%. Both of those falls were larger than consensus expectations and may be a sign that the 'sticky' inflation the Bank has consistently warned is staying its hand may be falling back.
