Economists across the United Kingdom are predicting a notable uptick in inflation for December, with consensus pointing towards a rise to 3.5% from November's 3.2%. This anticipated increase is largely attributed to a surge in travel-related expenses during the festive period, marking a potential pause in the recent downward trend of the cost of living.
Christmas Getaways Fuel Price Pressures
The Consumer Prices Index (CPI) inflation is expected to have climbed last month, reversing some of the sharp decline witnessed in November. A key driver behind this projected rise is the heightened demand for Christmas travel, which has significantly inflated the costs of plane tickets and hotel accommodations. Analysts estimate that airfares alone could have jumped by approximately 30% between November and December, exerting upward pressure on the overall inflation rate.
Divergent Forecasts Among Economists
While a consensus of economists anticipates a jump to 3.5%, there is notable variation in individual predictions. Rob Wood and Elliott Jordan-Doak of Pantheon Macroeconomics forecast a more modest increase to 3.3%, whereas Andrew Goodwin, chief UK economist at Oxford Economics, predicts a sharper rise to 3.6%. Goodwin suggests that the slowdown in the rising cost of living was "temporarily halted" in December, with volatile categories like clothing and travel services likely unwinding previous declines.
Conversely, analysts at Barclays offer a contrasting view, expecting inflation to remain unchanged at 3.2%. They attribute this stability to a slowdown in energy price inflation and steadier food and drink prices towards the year's end.
Impact of Data Collection Timing
Economists have emphasised that the timing of data collection by the Office for National Statistics (ONS) could critically influence the final inflation figure. If prices were gathered later in December, during the peak of school holidays, travel costs might have been substantially higher, potentially pushing the overall rate even more. This variability underscores the complexity of measuring inflation during volatile seasonal periods.
Long-Term Inflation Trajectory Remains Downward
Despite the expected December rise, experts maintain that the broader trend for inflation in the UK is still on a downward path. Victoria Scholar, head of investment at Interactive Investor, notes that "longer term, the trajectory for inflation is still on the downside, heading back towards the 2% target later this year." She cites November's budget from Chancellor Jeremy Hunt, which included contractionary fiscal measures like tax increases and spending cuts, as largely disinflationary. Additionally, growing slack in the labour market is seen as easing inflationary pressures across the economy.
Other factors contributing to the December forecast include a hike in tobacco duties announced in the autumn budget, which is set to have pushed up overall inflation. As the UK navigates these short-term fluctuations, the focus remains on the underlying economic indicators that suggest a gradual return to the Bank of England's target rate in the coming months.
