UK inflation rate rises to 4% despite falls in fuel prices

The UK inflation rate rose to 4% in the year to December, heading back up for the first time in 10 months.

According to the Office for National Statistics (ONS), the consumer prices index (CPI) climbed from 3.9% in November, halting what had been a phase of significant decreases.

This increase goes against the predictions of city economists who had anticipated a modest drop to 3.8%.

Lower inflation does not necessarily equate to falling prices, but rather a slower rate of increase.

Key factors

The alcohol and tobacco sectors saw significant year-over-year price increases. Alcohol prices rose by 12.8% in December 2023 compared to a 10.2% increase in November, while tobacco prices surged by 16.0% annually, largely due to increased tobacco duty announced in the UK government’s autumn statement.

However, this inflationary trend was juxtaposed with a decrease in transport costs.

The transport division saw a 1.3% fall in prices over the year to December 2023, with a slight rise of 0.6% between November and December.

This reduction in the pace of decline was primarily influenced by air fares and motor fuels, although offset by a strong downward contribution from used cars.

Air fares typically rise between November and December. This year, they rose by 57.1%, slightly less than the 61.1% increase a year ago.

The annual rate for air fares stood at 0.8% in December 2023, a decrease from earlier in the year.

In the motor fuels sector, petrol and diesel prices saw notable declines.

The average price of petrol fell by 8.2 pence per litre to 142.8 pence per litre, while diesel prices dropped to 151.4 pence per litre.

Consequently, overall motor fuel prices fell by 10.8% in the year to December 2023.

Grant Fitzner, the ONS chief economist, said tobacco price rises “were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year. Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago.”

Chancellor Jeremy Hunt has responded to the latest figures, he acknowledged that, much like in other countries, the trajectory of inflation is not linear.

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. We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”

TUC General Secretary Paul Nowak said:

“After 14 years of stagnating living standards you’ll struggle to find many people who feel any better off.

“Prices are still going up with inflation at double the Bank of England’s target. And whether it’s covering the weekly shop or paying the bills families remain under the cosh.

“If real wages have grown at their pre-crisis trend the average worker would be earning around £15,000 a year more.

“The Conservatives have delivered a decade of dismal economic growth which has hit pay packets and household budgets hard.

“Muddling through is not good enough. We need a government with a serious long-term plan.”