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Friday, Dec 12, 2025

Signs of hope on inflation despite slow price falls

Signs of hope on inflation despite slow price falls

City Comment: There are good reasons to think the worst of the inflation firestorm may well be over
The inflation supertanker can seem agonisingly slow to turn.

Another slight fall in the annual CPI rate to 10.1% in January is progress for sure but the headline figure is a mere percentage point below the October peak.

And at the supermarket checkouts and in the energy bills coming in for January the cost-of-living crisis feels as intense as ever.

Yet there are good reasons to think the worst of the firestorm may well be over as winter turns to spring. Prices actually fell 0.6% in January and core inflation, stripping out food and energy prices, was far better than expected by the markets at an annual rate of 5.8%, down from 6.3% in December.

Looking at the energy markets that lit the inflation fuse there are more reasons to be optimistic. The wholesale gas contract price for March dipped below 130p a therm yesterday for the first time since December 2021.

Although it is still well above the 50p level that was typical before the pandemic, the direction of travel remains encouraging. Domestic energy tariffs will rise again in April — although they will be capped by the Government’s £3,000 energy price guarantee — but after that they should start falling away.

With inflation still running at five times the Bank of England’s target rate it seems reasonable to assume — as the markets have — that one last rate rise, probably of a quarter point, is on the cards for March.

When Jeremy Hunt got the call to 11 Downing Street last autumn it was against a backdrop of chaos that had continued almost without a break for six years.

But barring another bolt-from-the-blue disaster it does appear that the economy is heading for calmer waters — business is finally getting the stability it has craved for so long.

It will allow the Chancellor to sound a more cheery note than he might have dared hoped for when he stands up to deliver his Budget a month from today
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