U.K. Inflation Rises More Than Expected, Casting Doubt on February Rate Cut

Britain’s annual inflation rate climbed more than anticipated in December, reinforcing the case for caution at the Bank of England and raising doubts over whether policymakers will cut interest rates at their February meeting.

Consumer prices rose 3.4% year-on-year, exceeding forecasts of 3.3% and edging higher from November’s 3.2%. While this remains well below the 11.1% peak reached in 2022 after the surge in energy prices, inflation is still stubbornly above the BoE’s 2% target.

On a monthly basis, prices increased 0.4% after a 0.2% decline in November. Core inflation, which strips out volatile food and energy costs, rose 0.3% on the month and held steady at 3.2% annually.

The figures will be closely watched by policymakers ahead of the central bank’s early-February meeting. In December, the Monetary Policy Committee narrowly voted 5–4 to cut rates by 25 basis points, bringing the benchmark rate to 3.75%—its lowest level since early 2023.

Analysts at Capital Economics said the latest data make another near-term cut less likely. “The rebound in CPI inflation from 3.2% in November to 3.4% in December makes it unlikely the Bank of England will cut interest rates on February 5,” the firm noted, while still expecting inflation to fall back toward 2% by spring, opening the door for further easing later in the year.