Inflation rose to 4% in December 2023

The Consumer Price Index (CPI) rose slightly in December 2023 to 4%, the Office of National Statistics (ONS) has found.

The slight increase, up from 3.9% in November last year, is the first uplift in the rate of inflation seen since February of the same year. Among the main contributors to the rise in inflation were an increase in tobacco prices, driven by increased duty. A number of recreational goods categories also saw price rises in December, including DVDs, computer software, and games consoles, which the ONS identifies as being less indicative of the wider economy with price changes more strongly driven by new releases and best-seller charts.

Transport costs also impacted inflation with air fares seeing a 57.1% rise between November and December, which outweighed falling prices of other goods in the category: motor fuel prices fell by 10.8% in the year to December 2023, with petrol prices at the pump 8.2p per litre cheaper than in November.

Looking ahead, inflation remains set to broadly trend downwards, despite December’s rise, although disruption to international shipping lanes in the Red Sea in response to the conflict in Gaza could drive up prices of some goods if global supply chains are significantly impacted.

Despite the slight uptick in inflation, financial markets expect the Bank of England not to raise interest rates further in response. The Bank of England’s economists previously forecasted that inflation would remain above its 2% target until 2025, and that interest rates would likely not begin to fall until later in 2024. The Bank of England’s base interest rate currently stands at 5.25%, its highest level in 15-years.