Economists predict UK inflation was steady at 2.6% in December; markets on tenterhooks ahead of US inflation, out later in the day

Ellie Henderson, a UK economist at Investec, is expecting UK inflation to tick up to 2.7%.

Similar to November’s increase, we do not single out one particular factor behind the rise. Instead our forecast reflects the confluence of various upward influences, including base effects once again. One unknown is to what extent businesses are already preparing for the higher cost of labour come April – itself a reflection of higher NICs [national insurance contributions] and changes to the national living wage – by starting to increase prices. Being extremely volatile in nature, airfares also have the potential to cause swings in the headline inflation rate. We expect there was a small boost to inflation from this component in December.

From there we forecast inflation to remain above the 2% target for the entirety of 2025, but the core measure to make further progress lower from the spring. This disconnect can largely be explained by energy prices, with the absence of the sharp falls in prices over the course of 2024 lifting inflation in 2025. Some inflationary impact from the budget is also likely to feed into overall cost pressures. The big unknown at this point is the shape of Trump trade policy, and crucially, the response of others including the UK to any significant changes.

UK inflation is expected to remain steady at 2.6% for December. While the word steady usually sounds like a good thing, investors and central bankers will be relatively unhappy with the current level, which sits significantly above the Bank of England’s 2% targeted level. We believe it’s too early to be talking about the prospect of Stagflation, but it’s certainly something already concerning many investors.

The one positive in the mix is that core inflation, which strips out volatile components such as food and energy, is expected to decline slightly to 3.4%. But once again, this number sits far above the targeted level for inflation.

9am GMT: International Energy Agency releases monthly oil report

9am GMT: Germany 2024 GDP

1.30pm GMT: US inflation for December (previous: 2.7%; forecast: 2.9%)