Surprise fall in UK inflation to 2.5% eases pressure on Rachel Reeves
UK inflation unexpectedly fell in December, handing some breathing space to the chancellor, Rachel Reeves, after a week of turbulence in financial markets.With the government under pressure on the economy, figures from the Office for National Statistics showed the consumer prices index eased to 2.5%, below a reading of 2.6% in November, meaning prices rose at a slower rate.City economists had forecast inflation would remain unchanged on the previous month.
However, inflation remained above the Bank of England’s 2% target, while experts warned it could rise above 3% before the end of this year,Grant Fitzner, the ONS chief economist, said: “Inflation eased very slightly as hotel prices dipped this month, but rose a year ago,The cost of tobacco was another downward driver, as prices increased by less than this time last year,“This was partly offset by the cost of fuel and also secondhand cars, which saw their first annual growth since July 2023,”In a crunch economic update just as the government battled to reassure jittery bond market investors, the latest snapshot could open the door for the Bank to cut interest rates as early as next month.
UK interest rates stand at 4.75%, after cuts in August and November last year.“[The latest figures] strengthens the case for a 25 basis point interest rate cut in February and lends some support to our view that rates will fall further and faster than markets expect,” said Ruth Gregory, the deputy chief UK economist at the consultancy Capital Economics.The pound gained 0.1% against the dollar, rising to $1.
2228 on Wednesday morning as financial markets priced the probability of an interest cut next month at 73%, up from 62% before the inflation figures were released.The yield – effectively the interest rate – on 30-year UK government bonds, or gilts, has fallen by nearly 5 basis points to 5.399% – after soaring to 5.472% on Monday, the highest since 1998.Reeves has faced sustained pressure over the cost of borrowing in recent days.
In response to the December inflation figures, the chancellor said: “There is still work to be done to help families across the country with the cost of living,That’s why the government has taken action to protect working people’s payslips from higher taxes, frozen fuel duty and boosted the national minimum wage,“In our plan for change, we were clear that growth is our number one priority to put more money in the pockets of working people,I will fight every day to deliver that growth and improve living standards in every part of the UK,”The latest snapshot showed core inflation – which excludes volatile items such as energy, food, alcohol and tobacco – rose at a slower rate than expected in December, cooling from 3.
5% in November to 3,2%,Services inflation, which is closely watched by the Bank of England, also fell, from 5% to 4,4%,Threadneedle Street had signalled it would take a gradual approach to cutting borrowing costs after inflation fell from a peak of more than 11% in late 2022, when soaring energy prices fuelled a surge in the cost of living.
However, analysts have warned that sticky inflation could derail cuts from the central bank despite stalling economic growth,Investors also warn that Reeves could be forced to U-turn on a pledge not to increase taxes should higher borrowing costs threaten to break her fiscal rules,The chancellor has come under intense pressure in the past week amid a rise in government borrowing costs to the highest level in decades,Driven by a global sell-off in bond markets, investors warn the UK is particularly exposed with a mix of weak growth, sticky inflation, and elevated government borrowing,Reeves on Tuesday signalled she was prepared to make emergency spending cuts to balance the books if required, while arguing her priority was to go “further and faster” to boost economic growth in an effort to placate financial markets.
Despite last month’s drop in inflation, economists warned it could rise again in coming months, fuelled by rising energy bills,The Ofgem consumer price cap increased by 1,2% in January, and is expected to creep higher from April,Business leaders have also said Reeves’s planned £25bn increase in employers’ national insurance contributions and 6,7% rise in the minimum wage from April could add to inflationary pressures.
Scott Gardner, an investment strategist at Nutmeg, said: “This data will increase the chances that the Bank of England cuts interest rates in February, though the path remains murky for multiple interest rate cuts this year.”
British novelists criticise government over AI ‘theft’
Kate Mosse and Richard Osman have hit back at Labour’s plan to give artificial intelligence companies broad freedoms to mine artistic works for data, saying it could destroy growth in creative fields and amount to theft.The best-selling novellists spoke out after Keir Starmer a national drive to make the UK “one of the great AI superpowers” and endorsed a 50-point action plan that included changes to how technology firms can use copyrighted text and data to train their models.Ministers had been consulting on whether to allow the major tech companies to hoover up massive quantities of writing, music and other creative works unless copyright holders actively opt out.It is seen as a way of supercharging the growth of AI companies in the UK. Huge volumes of data are needed to train AI models and technology firms claim copyright laws create uncertainty, which risks holding back development
How to politicize the truth on Facebook, Instagram, and Wikipedia
Hello, and welcome back to TechScape. Last Tuesday, I predicted Meta would enter a new political era after the departure of Nick Clegg. Two hours after I published last week’s newsletter, Mark Zuckerberg declared that the new conservative phase would begin. It was sooner and more brazen than I had expected – and faster-paced. Zuckerberg announced he would disband Meta’s US fact-checking operation because he believes his fact-checkers have been too politically biased
Google investigated by UK watchdog over search dominance
Google is being investigated by the UK competition watchdog over the impact of its search and advertising practices on consumers, news publishers, businesses and rival search engines.The tech company accounts for more than 90% of general searches in the UK, according to the Competition and Markets Authority.The CMA estimates that search advertising costs the equivalent of nearly £500 for each UK household a year, which could be kept down with effective competition.The watchdog announced on Tuesday it will investigate if Google is blocking competitors from entering the market, and whether it is engaging in “potential exploitative conduct” by the mass collection of consumers’ data without informed consent.It will also investigate whether Google is using its position as the pre-eminent search engine to give an unfair advantage to its own shopping and travel services
Amazon makes ‘largest ever’ UK order of electric trucks to cut carbon emissions
Amazon is to deploy nearly 150 electric heavy goods vehicles as well as piling packages on to trains and post-style trolleys in an effort to reduce the carbon footprint of delivering goods in the UK.The tech company said it had bought more than 140 electric Mercedes-Benz heavy goods vehicles (HGVs) and eight Volvo lorries – which it says is the UK’s biggest order of electric trucks – that can take loads of up to 40 tonnes.The vehicles will hit the road over the next 18 months, increasing the online retailer’s electric HGV fleet from nine at present.The US-owned company’s switch to electric logistics is partly funded by the government under its zero emission HGV and infrastructure demonstrator programme (ZEHID). Amazon plans to install fast-charging points across its UK network to keep the trucks in action
Ministers consider ban on all UK public bodies making ransomware payments
Schools, the NHS and local councils will be banned from making ransomware payments under government proposals to tackle hackers.In a crackdown on such cyber-attacks, operators of critical national infrastructure will be barred from bowing to demands when criminal gangs hold IT systems hostage.Payouts by private companies will have to be reported to the government and could be blocked if they are made to sanctioned groups or foreign states. Reporting ransomware attacks will also be made mandatory if the proposals become law.The plans, described by one expert as “the most significant intervention against ransomware by any national government to date”, will bring other public bodies into line with government departments, which are already banned from making payments
Meta’s ditching of factcheckers is potentially dangerous and a disservice | Letters
Meta’s move to scrap factcheckers is not about “complexity”, as it says (Report, 8 January), but to support Donald Trump and Elon Musk’s agenda.It is widely agreed that effective, fast and unbiased factchecking is essential for the proper functioning of social media platforms. Similarly, principles of free speech are foundational to fostering communication and public debate in a healthy democratic society. Mark Zuckerberg’s announcement that Meta is to follow X in introducing user-generated notes raises serious concerns.The shift will intensify pressures on vulnerable groups, including children, minorities, gender rights advocates and LGBTQ+ communities, who are already targeted by hate speech
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