Home Business News Inflation hike is ‘not good news’ this could now negatively impact the lowering of interest rates

Inflation hike is ‘not good news’ this could now negatively impact the lowering of interest rates

by Amy Johnson LLB Finance Reporter
18th Jan 24 7:38 am

According to official figures on Wednesday inflation has unexpectedly risen to 4% for the first time since February 2023, most economists had expected the rate to fall to 3.8%.

The annualised inflation was forecast to come in at 3.8% (Trading Economics) and core Inflation came in at 5.1% in the 12 months to December 2023, unchanged from 5.1% in November.

Inflation has risen due to a rise in alcohol and tobacco prices and the Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation rose to 4% in December, which is up from 3.9% in November 2023.

Tobacco and alcohol inflation has risen to its highest in more than 30 years in December followed by the rise of tobacco duty the month before.

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However, policy makers are warning that this could now negatively impact the Bank of England’s decision to lower interest rates.

Nicholas Hyett, Investment Analyst, Wealth Club said, “A surprise jump in inflation is not good news.

Policy makers, mortgage holders, investors and the average shopper had all been hoping price rises continued to slow over Christmas clearing the way for lower interest rates and easing the cost-of-living crisis.

“Christmas was particularly expensive for those indulging over the festive break, with alcohol and tobacco the driving forces behind the uptick inflation, although food and non-alcoholic drinks continued to see inflation slow.

“But, while the rise in headline inflation will attract the attention, longer term it’s the stubbornly high core inflation that is a greater concern.

“Still running at over 5.1%, until this comes down the UK will be very vulnerable to global economic shocks that cause spikes in food and energy prices and we’ve seen all too many of them recently.” 

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