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Alongside its counterpart in other developed countries, the UK BoE has been hiking interest rates as its major tool to fight headline inflation.
Inflation in the United Kingdom (UK) has fallen to 10.5% in December according to data from the British Office for National Statistics (ONS). The core Consumer Price Index (CPI) dropped from the 10.7% it was in November and down from the massive 11.1% inflation growth recorded in October, the highest seen in about 41 years.
The UK as well as other countries recorded similar inflation gains as the war between Russia and Ukraine stirred a lot of financial, energy and supply crises that nearly crippled most economies. With a concerted effort from the Bank of England (BoE) to reduce the inflationary growth rate, the November reading aligns with expectations from economists polled by Reuters.
According to the released ONS data, the core CPI indicator which excludes food, energy, alcohol, and tobacco was pegged at 6.5%, a reading considered to be steady for December. The ONS also reported that the biggest contributor to the reduced inflation includes transportation, recreation, and clothing.
Sectors including housing, food, and non-alcoholic beverages remain of huge concern as prices remain high. The concerted effort to fight inflation has been considered a major mantra for UK Prime Minister Rishi Sunak who pledged to reduce inflation by half in a January 4 address.
Sunak who served as the Chancellor of the Exchequer prior to becoming the UK Premier said he is concerned about inflation reduction in order to help “ease the cost of living and give people financial security.”
The move seems to be going fine thus far as showcased by the latest ONS CPI reading. While there is still a need for more work to be done, the interest rate hike from the BoE seems to be working thus far.
UK Inflation and Interest Rate Hikes
Alongside its counterpart in other developed countries, the UK BoE has been hiking interest rates as its major tool to fight headline inflation. In December, the British apex bank raised interest rates by 0.5 percentage points to 3.5% and experts believe the bank will further increase the rate when it meets next.
That inflation is reducing does not necessarily imply that the battle is won. Interest rate still remains sky-high and the goal of the Bank of England will remain to reduce it to a low single-digit figure. One major succor that UK workers have recorded is the fact that wages in the country grew by 6.4% year on year for the September – November period of last year according to the ONS.
While these high wages helped cushion the impact of inflation this period, Helen Dickinson, chief executive of the British Retail Consortium has warned that despite the perceived cliff in inflation, prices will still be high in the near term but hailed the concerted effort to ease the pains across the board.
“Retailers are determined to support their customers throughout this cost-of-living crisis. They are keeping the price of many essentials affordable, expanding their value ranges, raising pay for their own staff, and offering discounts for vulnerable groups,” she said.