"Today’s data likely closes the door on a February interest rate cut by the Bank of England but rate cuts later in the year are still expected. Despite services inflation increasing in December, this was not reflective of domestically generated price pressures and was largely driven by volatile categories, such as airfares. The MPC will likely look through it, particularly with wage growth continuing to slow, which should see services inflation ease over the coming months.
“Goods inflation edged up to 2.2% in December, however, recent trade developments pose a downside risk to the inflation outlook. The latest US tariff measures could dampen growth and increase uncertainty, potentially easing inflation. The proposed new tariffs may also lead to trade diversion, with some EU exports redirected from the US to the UK. This may put downward pressure on goods inflation over the coming year.
“Headline inflation increased to 3.4% in December but is likely to fall gradually over the coming months, with energy and food prices set to ease. We expect inflation to return to the Bank of England’s target in the spring.”
