Inflation is down. When will interest rates follow?

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As I, but apaprently no one else expected, inflation fell in December. The Office for National Statistics has reported the following this morning:

  • The Consumer Prices Index (CPI) rose by 2.5% in the 12 months to December 2024, down from 2.6% in the 12 months to November.
  • On a monthly basis, CPI rose by 0.3% in December 2024, down from 0.4% in December 2023.
  • The largest downward contribution to the monthly change in both CPIH and CPI annual rates came from restaurants and hotels; the largest upward contribution to both came from transport.
  • Core CPI (excluding energy, food, alcohol, and tobacco) rose by 3.2% in the 12 months to December 2024, down from 3.5% in November; the CPI goods annual rate rose from 0.4% to 0.7%, while the CPI services annual rate fell from 5.0% to 4.4%.

Given the reports of a very quiet Christmas for retailers, the hospitality sectors and other consumer-focussed businesses, how inflation could have moved otherwise was hard to imagine.

The problem with most economists is that they do not walk about. As a result, what is going on in the real world passes them by.

Now, when will the Bank of England cut interest rates, which is the move that the UK economy so desperately needs, and which this rate of inflation more than justifies?


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