"In the UK, Unexpected Inflation Surge Prompts Expectations of Delay in Bank of England's Possible Interest Rate Cuts"

 

In a surprising turn of events, inflation in the UK rose unexpectedly in December. Consumer prices increased by an average of 4.0 percent compared to the same month last year, as reported by the Office for National Statistics (ONS) in London on Wednesday. In November, the inflation rate had dropped to 3.9 percent, the lowest level in over two years. Economists surveyed by Reuters had anticipated a further decline to 3.8 percent. Notably, clothing, flight tickets, entertainment, as well as food and tobacco after a tax hike, experienced noticeable price hikes.

Financial markets are now anticipating that the Bank of England will initiate interest rate cuts later than previously expected. Between December 2021 and August 2023, the central bank raised its key interest rate 14 times, pushing it to a 15-year high of 5.25 percent. This move was aimed at combating inflation, which reached a 41-year high of 11.1 percent at the end of 2022. The central bank aims for an inflation target of two percent. The issue of inflation is likely to influence the outcome of the parliamentary elections expected later this year. "Inflation doesn't fall in a straight line, but our plan is working," said Finance Minister Jeremy Hunt. His potential successor, Rachel Reeves from the leading opposition Labour Party in polls, mentioned that many families had experienced financial difficulties during the 14 years of the Conservative-led government.

Meanwhile, the decline in UK house prices continues to accelerate, with November seeing the sharpest drop in over twelve years. Prices fell by 2.1 percent compared to November 2022, according to the Statistical Office. In October, the decline had been 1.3 percent. London experienced the most significant decline, with housing prices dropping by 6.0 percent. However, signs of stabilization are emerging as demand picks up due to slightly lower mortgage rates.

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