British inflation unexpectedly accelerated in December on tobacco duty hikes, data showed on Wednesday, missing expectations of a slowdown and dimming hopes of an interest rate cut.
The Consumer Prices Index climbed to four percent last month, the first increase since February 2023, the Office for National Statistics said in a statement.
That is double the Bank of England’s official target of two percent, and dashed market expectations for a slowdown to 3.8 percent.
The news also stoked worries over Britain’s cost-of-living crisis, after the rate touched a two-year low of 3.9 percent in November.
“The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases,” said ONS chief economist Grant Fitzner.
“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.”
The modest acceleration is a blow to embattled Prime Minister Rishi Sunak after CPI had achieved his goal of falling below five percent in October.
“As we have seen in the United States, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it,” said finance minister Jeremy Hunt in response to the data.
Markets are waiting to see when major central banks, notably the US Federal Reserve, European Central Bank and BoE, will start to cut interest rates.
Wednesday’s data comes one day after news that UK unemployment steadied and wages growth retreated in the three months to the end of November, partly easing concerns over inflation.
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