UK Annual Inflation Rate unexpectedly dropped to 2.5% in December 2024, down from 2.6% in November. This figure came in lower than the forecasted 2.6% and closely aligned with the Bank of England’s (BoE) forecast made in early November. Despite the slight decline, inflation still reflects a more stable economic environment than in previous months, signaling that price pressures are starting to ease.

Slowdown in Key Sectors

Several key sectors saw a slowdown in inflation during December. The prices for restaurants and hotels, for example, dropped to 3.4%, the lowest level since July 2021, compared to 4% in November. This reduction was primarily driven by a 1.9% fall in hotel prices. Similarly, inflation for recreation and communication slowed to 3.4% from 3.6%, while services inflation eased to 4.4%, the lowest since March 2022, down from 5%. Food and non-alcoholic beverages saw steady inflation at 2%, indicating stable pricing for essential goods.

Transport and Housing Costs See Mixed Trends

Transport costs experienced a more muted decrease, with inflation at -0.6%, compared to -0.9% in November. This was partly due to upward pressures from motor fuels and second-hand cars, which rose by 1%, partially offsetting a significant drop in airfares (-26%). Meanwhile, housing and utility prices rose slightly more in December, with inflation increasing to 3.1% from 3% in November, reflecting a slight uptick in housing-related costs.

Read More: UK Consumer Confidence Index Drops

Core Inflation Continues to Decline

The core inflation rate, which excludes volatile items such as food and energy, also saw a decline. It dropped to 3.2% in December, down from 3.5% in November. The monthly rate of core inflation increased by 0.3%, which was below the expected 0.5%. These figures suggest that underlying inflationary pressures are continuing to ease, supporting the view that inflation is gradually returning to more manageable levels in the UK.

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