UK inflation fell to a 3-month low of 10.5% in December

Britain’s consumer price inflation fell to a three-month low of 10.5% in December, providing some relief to the Bank of England and British households, but food and drink prices continued to rise at their fastest pace since 1977.

The decline in the headline inflation rate from 10.7 percent in November was in line with forecasts of economists polled by Reuters, and away from a 41-year high of 11.1 percent in October.

While the decline in gasoline and clothing prices affected the main rate of inflation, the prices of food and non-alcoholic beverages rose 16.8 percent compared to the previous year, the largest increase since September 1977.

Core consumer price inflation, which excludes energy, food, alcohol and tobacco, held steady at 6.3 percent in December.

Core consumer price inflation is viewed by economists as a better guide to underlying inflation trends.

The Bank of England predicted in November that core consumer price inflation would fall to around 5% by the end of 2023 as energy prices stabilize, but policymakers warned of continued upward pressure on inflation from a contracting labor market and other factors.

Financial markets expect the Bank of England to raise its main interest rate to 4 percent from 3.5 percent on February 2 in its quarterly update of its growth and inflation forecasts.

The British pound rose slightly against the US dollar after this data.

British Chancellor of the Exchequer Jeremy Hunt said after the data was released that high inflation “is a nightmare for household budgets,” hurting business investment and leading to strikes.

Hunt objected to union demands for higher wages in the public sector, with many workers on strike because wages were rising at a much slower pace than inflation and less than average wages in the private sector.