Core rate stripping out energy and food also falls more than expected; markets on tenterhooks ahead of US inflation, out later in the day

UK inflation unexpectedly dipped last month, while the closely watched core rate, which strips out volatile energy and food costs, fell more than expected.

The consumer prices index rose by 2.5% in the 12 months to December, down from 2.6% in November, according to the Office for National Statistics. Economists had expected inflation to stay steady at 2.6%.

We have made it very clear to Ofwat that, if it proceeds with its proposals, it is highly likely that base pay will need to be increased to compensate for the loss of performance-related pay plans.

We also highlight the impact the proposals will have on attracting, retaining and motivating critically needed talent across the sector, and the importance of this for attracting investment.