British Inflation Dips Unexpectedly as Core Measures Ease

Contrary to expectations, inflation in the UK decreased slightly in December. The rate fell to 2.5% from 2.6% in November, surprising economists and influencing interest rate forecasts. The Bank of England is expected to gradually reduce borrowing costs, despite ongoing inflationary pressures and economic challenges.

In an unexpected turn, British inflation eased in December, bringing relief to economic policymakers. Official figures revealed a decline in the annual inflation rate to 2.5% from the previous 2.6%, contrary to economists' predictions of stability. This data arrives amidst forecasted future inflation hikes, potentially exceeding 3% in 2025.

Following this release, markets reacted with increased confidence in the Bank of England's potential interest rate cuts. Investors now speculate an 82% chance of a rate reduction, signaling a shift in borrowing cost strategies. British government bonds experienced a yield drop, while the sterling initially fell but later recovered.

The slowdown in inflation contributes to maintaining gradual economic easing while addressing budgetary targets. Nonetheless, price pressures linger, with core inflation and service prices showing marked decreases yet indicating ongoing economic challenges and potential for temporary price momentum jumps.

(With inputs from agencies.)