Interest Rate Cut Possible Despite Rise In Inflation

INTEREST rates could still be cut this spring despite yesterday's surprise rise in inflation, experts predict.

- Martyn Brown

The rate increased unexpectedly for the first time in nearly a year, driven by rising tobacco and alcohol prices.

Official figures show inflation rose to 4% in December, up from 3.9% the previous month but it still means Prime Minister Rishi Sunak met his promise to halve inflation by the end of 2023.

After yesterday's rise, economists cautioned the path of inflation may not be smooth and warned figures for January may show another increase, amid concerns over the impact of the Red Sea shipping attacks.

However they said it could still drop sharply in the coming months.

And they said it is likely the Bank of England will still look to trim interest rates towards the end of spring.

Chancellor Jeremy Hunt insisted the Government's plan is the right one. He said: "As we have seen in the US, France and Germany, inflation does not fall in a straight line.

"But our plan is working and we should stick to it." He said the inflation risk posed by the Red Sea crisis was one of the reasons for the UK-US military strikes on Houthi targets, as fears grow the rebels' attacks on ships could push up the cost of oil, gas and goods.

Freedom

Mr Hunt told broadcasters: "It's precisely because we are concerned about what's happening in the Red Sea that the UK has taken action with the United States and our other allies to secure freedom of navigation.

"We are obviously watching the situation very carefully." Martin Beck, of economic forecasting group the EY Item Club, said hopes of a significant cut to energy bills in April, coupled with slowing UK wage growth, should see inflation fall to 2% by May.