HomeBussinessUK inflation dips to 2.5% in December in boost for Rachel Reeves

UK inflation dips to 2.5% in December in boost for Rachel Reeves

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Michael Saunders, a former member of the Bank of England’s monetary policy committee which sets interest rates, said the latest inflation figure would be “some help” in trying to ease some of the worries over UK interest rates.

“If it stays like this, we will be on route to slightly more interest rate cuts,” he told BBC’s Today programme.

The Bank of England decided to hold interest rates at 4.75% last month, after policymakers said the UK economy had performed worse than expected, with no growth at all between October and December.

It will next set rates in February, but inflation remains over the Bank’s 2% target.

However, Ruth Gregory, deputy chief UK economist at Capital Economics said the lower-than-expected inflation figure for December “strengthens the case” for a 0.25 percentage point cut next month.

But there are concerns inflation could rise further, with firms warning they will raise prices to cover tax rises coming into force in April and the threat of potential trade taxes imposed by the US, with president-elect Donald Trump pledging a 20% tariff on all imports.

High inflation pushes up the cost of living for households, and can lead to interest rates remaining at a higher level, making the cost of loans, credit cards and mortgages, more expensive.

Jonny Gettings, director of operations at Italian restaurant and small hotel Ennio’s in Southampton told the BBC the hospitality business was being hit by several rising costs from produce and ingredients to staff wages and utility bills.

He said the outlook for the business appeared “considerably worse” with increases to the minimum wage and national insurance contributions, and reductions to business rates relief commencing in April.

“It will undoubtedly have a considerable impact on the way we run our business,” he said. “Our staff are our biggest asset and the worry is the balancing act is making sure that we don’t impact on their future employment.

Mr Gettings said cutting his staff working hours would be the “last scenario” the business would look at, adding they could look at shrinking the menu size, review suppliers, or change the restaurant’s opening hours.

“As soon as you increase the prices, you’ve got another bunch of problems to deal with, because then the worry is the customers will vote with their feet and they’ll go and eat elsewhere.

“You can only charge so much for a menu item before the guest is going to say, well, hang on a minute.”

In response to turbulence in the markets in recent days, it is understood the chancellor will now bring forward announcements from Labour’s promised industrial strategy within the next two weeks.

Jane Syndenham, investment director at Rathbones Investment Management, said the investors seemed to “kind of shrug off” Reeves’s comments on Tuesday.

“We just need to see some detail – are there going to be some tax breaks for certain industries? I think specifics and action is what the market wants to see.”

Early on Tuesday, the pound rose slightly to stand at $1.22. Ms Syndenham said a weak pound tended to signal a “lack of confidence” in the UK economy.

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