Inflation has risen to 4 per cent in the year to December 2023, up from 3.9 per cent the month prior.
According to the ONS this is mainly due to tobacco and alcohol prices increasing.
Richard Carter, head of fixed interest research at Quilter Cheviot said the figures showed the UK’s battle with inflation was not over and the situation still remained "precarious".
He said: “Though inflation has risen, the latest GDP figure left the UK teetering on the edge of a technical recession and the labour market is showing signs of weakening, so there is no doubt that the Bank of England will continue to face increasing pressure to begin cutting rates.
“What’s more, the falls in inflation prior to December have also started to take effect on pay, with total pay growth slowing more than expected to 6.5 per cent in November, down from 7.2 per cent in October, which will only exacerbate this further.”
Core inflation still remains relatively high and unchanged from November 2023 at 5.1 per cent and is still far from the Bank of England’s 2 per cent target.
For those saving and looking for mortgages, Sarah Coles head of personal finance at Hargreaves Lansdown said the latest figures could mean a pause in savings rate cuts or even people getting "better deals".
She said: “The expectation of lower inflation figures is factored into the mortgage market. It means we’ve seen some chunky cuts – including the high street giants.
"The average two year rate has now dropped to 5.62 per cent, according to Moneyfacts - a full percentage point lower than it was four months ago. Even the big lenders are offering rates below 4 per cent.
“This surprise rise in inflation could mean we get a pause in the cuts, and there’s a chance some of the better deals could go sooner rather than later, so if you are in the market for a fix, it’s worth acting as soon as it makes sense for you.”
This time last year inflation stood at 10.5 per cent with the Bank of England raising the rate 14 consecutive times in a bid to control it.
Danny Vassiliades, partner at XPS Pensions Group said that some forecasts are suggesting inflation could hit the Bank’s 2 per cent target by mid-2024.
He said: “In this scenario, many pension increase limits will not apply, to the benefit of pension scheme members.”
Jonny Black chief commercial and strategy officer at Abrdn Adviser said that while it is expected for inflation to fall throughout 2024, he is mindful that there are still "volatile and uncertain" economic conditions at play.
He said: “Perhaps the question on most clients’ lips will be what this means for interest rates, and how soon they’ll start to fall. The Bank of England will announce its decision in just over two weeks’ time – another flashpoint where clients will be looking for even closer support, and where advisers have a real opportunity to once again underline their value.”
alina.khan@ft.com
