UK inflation (Consumer Prices Index including owner occupiers’ housing costs – CPIH) declined slightly in an unexpected development. Inflation was measured at an annual rate of 2.5% in December, down from November at 2.6%. On a monthly basis, the consumer price index rose by 0.3% in December 2024, down from 0.4% in December 2023.
The Office of National Statistics said restaurants and hotels generated the most significant downward contribution to the monthly change.
Core inflation, excluding energy, food, alcohol, and tobacco, rose by 4.2% in the 12 months to December 2024, down from 4.4% in November; the CPIH goods annual rate rose from 0.4% to 0.7%, while the CPIH services yearly rate fell from 5.7% to 5.4%.
Group CEO of Manx Financial Group, Douglas Grant, said the unanticipated decline brings a mixed reaction.
“Persistently high inflation above the 2% target continues to drive up costs across the board, from raw materials to energy, while significantly shaping customer spending patterns. To remain resilient, SMEs must proactively address these challenges. Effective pricing strategies and vigilant cash flow management are critical. Regularly reviewing budgets, renegotiating supplier contracts, and leveraging bulk purchase discounts can help offset rising costs. Additionally, adopting new technologies and streamlining operations can reduce waste, enhance productivity, and improve overall efficiency. SMEs should seize this opportunity to reassess their lending strategies and strengthen their financial footing to navigate ongoing market uncertainty and position themselves for long-term success.”
Grant said in-house data shows an improvement as 1/3rd of businesses claim they are pulling back due to financial constraints, an improvement from 2023 when 40% claimed the same.
“However, around 10% of SMEs continue to face challenges in accessing external financing. Given their pivotal role in fostering growth, employment, and innovation, creating a stable and supportive lending environment is vital. Strengthening the lending environment will help businesses navigate rising taxes, geopolitical risks, and cost-of-living pressures.”
Grant continued pressuring the Labour government for “targeted solutions” supporting SMEs.
Paul Noble, CEO of Chetwood Bank, described the inflation report as good news for Britons to start the year.
“Many will have approached today’s result with some apprehension, but 2025 can begin on a positive note despite the uncertainty. The economic environment is still nowhere near stable, with inflation yo-yoing back and forth from the 2% target. The uncertainty surrounding the budget has not dissipated, but these figures will help to calm nerves nationwide, at least in the short term. However, the spectre of public sector wage increases will keep experts guessing as the year goes on, and the Bank of England will be watching CPI closely as they consider the timing of their next rate change.”
Noble said that financial institutions must support consumers by providing solutions and products that add value.
Some pundits said that slowing inflation may mean a rate cut in the future.
Last month, the Bank of England decided to hold rates at 4.75%, with three members out of nine voting to cut rates by 25 bps to boost growth. The Bank will meet in February to review rates again and current data. With growth pegged at around zero, the Bank may feel compelled to do something to improve the struggling UK economy.