In a surprising turn, the UK's inflation rate dropped to 2. 5% in December 2024, catching economists off guard. The consumer price index (CPI) had previously been at 2. 6% in November. Core inflation, which doesn't include the ups and downs of food and energy prices, also dipped to 3. 2%, down from 3. 5% in November. This comes after a low of 1. 7% in September. The cost of services rose slower in December, coming in at 4. 4%.

The Bank of England (BOE) has a big decision to make at their meeting on February 6th. They might cut interest rates from 4. 75% to 4. 5%, even though there are still worries about inflation, like steady wage growth and uncertainty about the economy. The BOE wants to keep inflation at 2%.

The UK's economy has been facing tough times. Economists are worried about slow growth and problems caused by things like possible trade tariffs after President-elect Donald Trump takes office. Also, there are internal issues that have been bothering the Labour government and the Treasury since the October budget.

British Chancellor Rachel Reeves said that more needs to be done to help families with the cost of living. She thinks economic growth is the top priority. Ruth Gregory, a top UK economist, said the new data is good news and makes it more likely that the BOE will cut interest rates in February. She thinks inflation will go up a bit in the first half of the year but then drop below the 2% target next year.

Businesses are worried about tax hikes starting in April. They think it will hurt investment, hiring, and growth. The UK's borrowing costs and currency have also been weaker because of worries about the economy and the government's plans. Rachel Reeves wants to balance the budget, but she might have to change or break her own rules to do it. She could raise taxes more, cut spending, or do nothing and hope things get better.

UK Inflation Dips in December 2024

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