UK inflation dips slightly to 10.5% but people continue to feel pinch

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UK inflation fell back slightly in December to 10.5% but remains at one of the highest levels in 40 years as the cost of living crisis continues.

The Office for National Statistics (ONS) said the annual rate as measured by the consumer prices index (CPI) dipped again last month, continuing a fall from 10.7% in November and its recent peak of 11.1% in October. City economists had forecast a modest fall to 10.5%.

It comes after Rishi Sunak promised to halve the rate of inflation this year as the cornerstone of his plans for the economy.

Bank of England officials, concerned about the continuing dramatic rise in prices over the past year, are expected to increase interest rates again at their next meeting.

Analysts said the central bank was likely to increase rates by between 0.25% and 0.5%, although many cautioned that inflation was governed by the global prices of energy and food, which had already begun to decline.

The modest drop in December’s CPI was driven mainly by a significant fall in petrol and diesel prices and a decline in clothing prices growth compared with the same month in 2021.

The ONS chief economist, Grant Fitzner, said petrol fell 8p a litre and diesel prices slumped 16p over the course of December.

However, he said there was sufficient momentum behind price increases in the services sector, and especially hospitality and leisure, to keep prices rising strongly.