Relief for Reeves as UK inflation falls slightly in December

Inflation in the U.K. edged lower on the month before, giving some breathing room to a government under severe pressure from soaring borrowing costs.

Price rose by 2.5 percent on an annual basis in December, the Office for National Statistics said today, down from 2.6 percent in November. Analysts had expected it to stay at 2.6 percent. Excluding volatile food and energy prices, the annual rate fell more clearly, to 3.2 percent from 3.5 percent.

Notably, inflation in services fell to an annual rate of 4.4 percent from 5 percent. Services prices are tightly tied to wages and have been the most stubborn component of inflation as the Bank of England fights to get price it back to its mandated level of 2 percent.

The Office for National Statistics said that cooling in the restaurants and hotels sectors of the economy had contributed to the slowdown in price increases.

The U.K. has seen a marked increase in the costs that investors are demanding to take on government debt. A cool inflation reading gives the Bank of England more freedom to lower interest rates at its next meeting at the beginning of February, helping to keep the government’s borrowing costs at a manageable level.

The pound ticked up against the dollar on the news, suggesting that the numbers had at least avoided undermining market confidence any further.