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UK inflation rate doubled in December despite struggling economy

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Tom Belger
·Finance and policy reporter
·2-min read
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Members of the public in Jedburgh High Street as schools and non-essential shops are closed as part of country wide measures to stem the spread of the new variant of coronavirus on January 05, 2021 in Jedburgh, Scotland. Scottish First Minister, Nicola Sturgeon, announced strict lockdown measures ordering people to stay at home and to only leave the house for basic food shopping and essential travel to and from work.  (Photo by Ewan Bootman/NurPhoto via Getty Images)
Members of the public in Jedburgh, Scotland, as new figures show inflation rising. Photo: Ewan Bootman/NurPhoto via Getty Images.

The inflation rate doubled last month as prices ticked higher in the run-up to Christmas.

According to data from the Office for National Statistics (ONS), prices in December were up 0.6% on a year earlier.

The inflation rate remains low by historical standards, but most analysts had expected a rise of 0.5%. The figure marks an uptick in the pace of price increases recorded by the ONS, with November seeing only a 0.3% year-on-year rise.

Higher prices for transport, recreation and culture were flagged by statisticians, despite food and drink prices falling.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, had predicted the 0.6% increase.

Watch: What is inflation and why is it important?

READ MORE: Minister says Brexit deal not to blame for empty shelves in Northern Ireland

“Granted, far fewer people travelled this Christmas than usual. But airlines and ferry companies have reduced capacity, shoring up prices,” he wrote on Tuesday.

The ONS added: “Despite the travel restrictions in place in December, prices for air fares followed their usual seasonal pattern, with price increases between November and December 2020.”

Petrol prices rose 1.5p a litre month to month, and clothing and footwear prices nudged 0.1% higher.

The retail industry’s own figures showed a bigger rise in clothing prices in December, bucking a seasonal trend of falling costs, as retailers battled to stay afloat and Black Friday sales ended.

The modest gains in ‘recreation and culture’ prices reflect no repeat of the previous year’s discounting on laptops and software, and small increases in video game costs.

READ MORE: Tesco enjoys record Christmas but COVID-19 costs hit £810m

On a month-to-month basis, consumer prices overall were up 0.3% compared to November, when they had dipped 0.1% a month earlier.

Michael Hewson, chief market analyst at CMC Markets UK, said the latest figures were “perhaps signalling a slow rise in prices.” But he said price data for producers suggested “underlying inflation [is] still looking fairly benign.”

Tombs said rising inflation weakened the case for a further interest rate cut by the Bank of England’s monetary policy committee (MPC).

But he predicted goods prices may come under pressure later this year as easing lockdown restrictions allow consumers to spend on services instead. Higher unemployment may also put further downward pressure on prices and wages.

“The MPC will be under no pressure even to hint at the start of a hiking cycle this year, or in 2022,” he said.

Watch: Why can't governments just print more money?