Tobacco duty causes surprise boost to UK inflation in December | Inquirer Business

Tobacco duty causes surprise boost to UK inflation in December

/ 04:19 PM January 17, 2024

Tobacco duty causes surprise boost to UK inflation in December

A shopping trolley is pushed around a supermarket in London, Britain May 19, 2015. REUTERS/Stefan Wermuth/File photo

LONDON  -Britain’s annual rate of consumer price inflation rose for the first time in 10 months in December, increasing to 4 percent from a more-than-two-year low 3.9 percent in November, official figures unexpectedly showed on Wednesday.

A rise in tobacco duty lay behind the increase, the ONS said.


A Reuters poll of economists had pointed to a fall in inflation to 3.8 percent.


The data, which follows bigger-than-expected falls in inflation in recent months, potentially adding to concerns at the Bank of England, which raised interest rates to a 15-year high of 5.25 percent in August.

The rise in Britain’s inflation rate followed increases seen in the euro zone and United States in December.

READ: Euro zone consumers slash inflation expectations – ECB survey

Sterling rose against the U.S. dollar after the decision, which may dampen financial markets’ conviction that the BoE will start cutting interest rates in May this year.

READ:US producer prices unexpectedly fall; goods deflation seen persisting

The central bank forecast in November that it would take until late 2025 to return inflation to its 2 percent target, but many economists now think this could happen as soon as April or May this year due partly to a slide in wholesale gas prices.

Surging gas prices following Russia’s invasion of Ukraine pushed British inflation to a 41-year high of 11.1 percent in October 2022, adding significantly to existing inflation pressures from supply chain difficulties following the COVID-19 pandemic.


Wednesday’s figures showed that core inflation – which excludes volatile food, energy, alcohol and tobacco prices – was 5.1 percent in December, the same rate as November.

Services inflation increased to 6.4 percent in December from 6.3 percent in November.

READ:UK inflation falls far more than expected, lowest since Sept 2021

The BoE looks at both core CPI and services inflation as a better guide to underlying price pressures in the economy, especially those caused by rapid wage growth.

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Figures on Tuesday showed average weekly earnings excluding bonuses rose by an annual 6.6 percent in the three months to the end of November – the slowest increase in nearly a year but roughly double the pace the BoE views as consistent with getting inflation back sustainably to 2 percent.

TAGS: Britain, Inflation, tobacco

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