shock fall in expense boost boosts profit rate cut hopes
Getty ImagesUK expense boost unexpectedly dipped in December, raising expectations of an profit rate cut next month.
Prices rose 2.5% in the year to December, down from 2.6% the month before, marking the first fall in expense boost for three months.
The drop was driven by hotel prices falling and smaller rises in airfares than usual, but prices continue to rise faster than the financial institution of England’s target.
However, the latest figures ease pressure on Chancellor Rachel Reeves, who has faced criticism following a fall in the worth of the pound and government borrowing costs hitting the highest level for several years.
“If it stays like this, we will be on route to slightly more profit rate cuts,” Michael Saunders, a former member of the financial institution of England’s financial regulation committee which sets profit rates, told the BBC.
The financial institution of England decided to hold profit rates at 4.75% last month, after policymakers said the UK economy had performed worse than expected, with no growth at all between October and December.
But Ruth Gregory, deputy chief UK economist at capital Economics, said the expense boost figure “strengthens the case” for a cut to 4.5% next month.
Investors have also increased bets on the likelihood of a reduction next month and are backing a further cut by the complete of 2025.
expense boost is much lower than its peak in October 2022 when prices soared, pushing up the expense of living for households and leading to higher profit rates, which has made the expense of loans, financing cards and mortgages, more expensive.
Economists had expected expense boost to remain unchanged last month.
Easing worth rises for restaurants and falling hotel prices helped drive expense boost lower, the the Office for National Statistics (ONS) said.
Prices for tobacco products, which include cigarettes, pouches, vape refills and cigars, also increased at a slower pace.
But Grant Fitzner, chief economist of the ONS, said this was offset by the rising expense of fuel and second-hand cars.
Following the release of the UK data, government borrowing costs fell back to last week’s levels and the pound rose slightly to stand at $1.22.
obligation costs in the UK then fell further after figures in the US revealed core expense boost had fallen more than expected, though the headline US expense boost figure rose.
Chancellor Reeves said there was “still work to be done to assist families across the country with the expense of living”, but added the government had “taken action to protect working people’s payslips from higher taxes” and increased the minimum wage.
But shadow chancellor Mel Stride said market advancement had been “killed stone dead by this government” and called for Reeves to “urgently explain how she will now achieve this”.
In response to turbulence in the markets, it is understood Reeves will bring forward announcements for Labour’s industrial way.
Jane Sydenham, capital director at Rathbones capital Management, told the BBC’s Today programme investors needed to “view some specific” on the UK’s plans.
“Are there going to be some levy breaks for sure industries? I ponder specifics and action is what the trade wants to view,” she said.
Rising borrowing costs have a knock-on result on the government’s levy and spending plans, because it will have to pay more profit to finance its existing obligation. That leaves less to spend on community services and capital.
Darren Jones, chief secretary to the Treasury, told the BBC community services would “have to live within their means”.
When pressed on whether that sounded as though cuts were on the way, he replied: “It’s just about prioritisation.”
‘You can only fee so much’
Jonny Gettings, director of operations at Italian restaurant and tiny hotel Ennio’s in Southampton, told the BBC the outlook the business appeared “considerably worse” with increases to the minimum wage and national insurance contributions and reductions to business rates relief from April.
Mr Gettings added cutting staff working hours would be the “last scenario”, but said the restaurant could look at shrinking its menu size, review its suppliers, or transformation opening hours.
“As soon as you boost the prices, you’ve got another bunch of problems to deal with, because then the worry is the customers will vote with their feet and they’ll leave and eat elsewhere,” he added.
“You can only fee so much for a menu item before the guest is going to declare, ‘well, hang on a minute’.”
Rent and bills rising
Some people have expense boost-linked phone and broadband contracts, which means their statement will rise in April in line with the latest data.
Comparison website Uswitch said these bills are set to boost by an average of £21.99 per year for broadband and £15.90 a year on average for mobiles.
However, owing to recent rules, lots of contracts now display any expected rises in pounds and pence each year during the course of the agreement.
divide ONS figures released on Wednesday showed average rent costs rose 9% in December compared with a year earlier as UK house prices increased by 3.3% in the 12 months to November, with the biggest rise seen in Northern Ireland.
