As the cost-of-living crisis continues to squeeze British households, economists are predicting a potential uptick in the Consumer Price Index (CPI) inflation rate for December, despite expectations of a slowdown.
Some experts, including Rob Wood and Elliott Jordan-Doak from Pantheon Macroeconomics, are forecasting CPI to rise to 3.3% in December, up from 3.2% in November. This potential increase is attributed to factors such as a hike in tobacco duties announced in the autumn budget, as well as soaring prices for plane tickets and hotel stays amid stronger demand for Christmas travel.
However, the timing of the Office for National Statistics’ (ONS) data collection could be crucial, as prices may have differed throughout the month. Andrew Goodwin, chief UK economist for Oxford Economics, believes the slowdown in the rising cost of living was “temporarily halted” in December, with volatile categories like clothing, airfares, and accommodation services likely to have unwound the previous month’s downward pressure. Goodwin is predicting a sharper increase in CPI inflation to 3.6% in December.
In contrast, analysts at Barclays expect inflation to remain unchanged at 3.2% in December, forecasting a slowdown in energy price inflation and more stable food and drink price rises towards the end of the year.
Despite the mixed projections, experts generally agree that inflation is still heading downwards in the longer term, with Victoria Scholar, head of investment at Interactive Investor, stating that the trajectory is “on the downside, heading back toward the 2% target later this year.” This optimism is partly driven by the Chancellor’s recent budget measures, which were largely viewed as disinflationary due to their contractionary fiscal policies, as well as signs of slackening in the labour market, which could ease inflationary pressures in the UK economy.