UK inflation unexpectedly rises as cost of tobacco and alcohol increases

A shopper looking at wine in a supermarket. The cost of buying alcohol and tobacco added the largest contribution to inflation since 2006. UK inflation rose unexpectedly to 4.0% in December in the first increase for 10 months, complicating the timing of interest rate cuts from the Bank of England this year. Shares on the FTSE 100 slumped 1.5% to register the worst daily fall since last August as investors bet that interest rates would be cut more slowly this year by the Bank of England than previously forecast. The price of Brent crude dipped more than 2% before a modest recovery to $77 a barrel with oil traders blaming the downturn on figures showing that China, the world’s largest consumer of oil, food and metals, grew more slowly than expected in the fourth quarter of 2023. Investors have poured funds into company stocks in the expectation of an economic recovery fostered by cuts in the cost of borrowing from the highest levels since the 2008 financial crisis. Warnings from officials at the European Central Bank that interest rates would need to remain high for much of the year to bring down inflation across the 20-member eurozone were another trigger for the broad-based sell-off in stocks. The Office for National Statistics said the UK’s annual inflation – as measured by the consumer prices index – went up from the 3.9% reading in November , confounding City economists’ forecasts of a modest decline to 3.8%. Financial markets pared back expectations for a first cut to come in May, with June now seen as more likely, while also betting on a smaller reduction in borrowing costs by the end of the year from about 1.24 percentage points before the data to about 1.12 percentage points. The increase in the annual rate […]

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By Donato