UK headline inflation eased to 2.5% year-on-year in December, down from 2.6% in November. Core CPI, which excludes volatile components like food and fuel, also slowed, declining from 3.5% to 3.2%. Meanwhile, services inflation—a key measure closely watched by policymakers—dropped from 5% to 4.4%.
While a decline in inflation indicates that prices are rising at a slower pace rather than falling outright, the figures came in below economists’ expectations and could pave the way for the Bank of England to consider cutting interest rates at its upcoming meeting in February.
The data will no doubt provide some relief to Chancellor of the Exchequer Rachel Reeves, who faced tough questioning in Parliament this week following a recent sell-off in the UK bond market. The sell-off, partly driven by investor concerns about the Labour government’s ability to meet its fiscal rules, had raised borrowing costs. However, by Tuesday, both the pound and UK government bonds showed some signs of recovery, with 10-year gilt yields easing three basis points to 4.86% – indicating a stabilisation in borrowing costs. This serves as a timely reminder that market volatility is often fleeting, and that investors would do well to focus on their long-term strategies rather than overreact to short-term market noise. Patience, perspective and resilience – as always – remain the cornerstones of successful investing.
Also, this week Reeves made a diplomatic visit to China, the world’s second-largest economy. Upon returning, Reeves emphasised her mission to strengthen ties that promote global interconnectedness and stimulate UK economic growth. She highlighted that progress had been made in opening potential avenues for British firms to gain greater access to Chinese markets, a move seen as a strategic step toward enhancing UK economic prospects. This initiative could be worth £600 million to the UK over the next five years.
Since the beginning of 2024, China’s economy has shown consistent signs of recovery, achieving an estimated annual growth rate of around 5 percent despite periodic fluctuations. On Tuesday, provincial-level regions across the country began unveiling their economic performance for the year. Despite facing some challenges, powerhouses such as Beijing and Zhejiang Province in East China led the way, bolstering confidence in the nation’s overall GDP growth trajectory for 2025 by revealing respective growth of 5.5% and 5.2% in 2024 (estimated).
Still to come this week we have retail sales data for the US, China and UK. We also have US inflation data as well as China’s GDP figure.
Investment Management Team
