Consumer prices remained at an elevated level in December, putting pressure on the Bank of England (BoE) and Rishi Sunak. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) rose to 4% in December from a year earlier. This increase was higher than expectations and is also above the Bank of England’s target of 2.0%.

British inflation rose by 0.4% on a MoM basis after retreating by 0.2% in the previous month. The same report showed that the core CPI, which excludes the volatile food and energy prices, rose by 4.5% in December flat from November.

These numbers mean that the Bank of England has more work to do as it battles to bring inflation to its comfortable level of 2%. Its next meeting is scheduled for February 1st. Economists expect that the bank will maintain high-interest rates for longer. Besides, data published last week showed that the UK GDP rebounded in November.

There is a possibility that inflation will remain above 2% for longer. Data published by Rightmove showed that the asking price of most houses continued rising in December. A separate report by Halifax showed that house prices jumped for three months straight in December. Housing is a key driver for inflation.

Meanwhile, the ongoing crisis in the Middle East has led to higher shipping costs, with the average cost of transporting a container soaring above $3,000. The price of natural gas and crude oil has also held steady as the crisis escalates.

Meanwhile, the producer price index (PPI) remained on edge in December. The PPI input dropped by 2.8% while the PPI output rose by 0.7%

Therefore, there is a likelihood that the Bank of England will not cut interest rates in the first half of the year. Besides, a rate cut could be seen in political terms now that the UK is set to have an election later this year.

The UK is not the only country struggling with high inflation. In the US, data released last week showed that the headline CPI rose from 3.2% in November to 3.4% in December. Core inflation came in at 3.8%, much higher than the 2% target.

Like the BoE, analysts have started ruling out a quick rate cut by the Federal Reserve, which explains why the dollar index has surged recently. UK and US bond yields have also rallied this week. Before these events, analysts were expecting rate cuts as soon as in March.

The GBP/USD reacted mildly to the UK inflation report and was trading at 1.2630, its lowest point in a week.

More By This Author: