Inflation rises to 4% - so has the downward trend stalled?

Economists had previously forecast that inflation would drop down to 3.8% from 3.9% in November, ITV News Business and Economics Editor Joel Hills reports

Context is important.

As recently as November, the Bank of England (BoE) was expecting the headline annual rate of inflation to be 4.6% at the end of 2023.

Today, we learned that inflation in December rose, unexpectedly, to 4%. That's still well below the Bank's forecast.

"Inflation does not fall in a straight line," points out the chancellor. And he's right.

There are still good reasons to believe price rises will ease further in the months ahead.

The international market price of energy was the powerful force which propelled into outer space in the first place. Now, that force is acting to pull inflation back down to earth.

Household bills are much lower than a year ago and Ofgem's price cap is set to fall again by as much as 15% in April, if the market price of gas and oil remains where it is.

The prices which British manufacturers pay for the raw materials they need also continues to fall.

This morning, two very respectable forecasters, Pantheon and Capital Economics, are predicting that by May, inflation will be at or below the BoE's 2% target, leaving the road clear for interest rate cuts.

But not everyone agrees.

The Bank of England will have a tougher time getting inflation down now that conflict has broken out in the Middle East, former prime minister and chancellor Gordon Brown told ITV News Business and Economics Editor Joel Hills in Davos, Switzerland

Yesterday, here in Davos, Gordon Brown told me that, in his view, the attacks on shipping in the Red Sea will make it "incredibly difficult" to get inflation back to 2%.

Container vessels are already avoiding the key trade route - causing delays and adding to the cost - and, yesterday evening, Shell's chief executive, Wael Sawan, confirmed that, like BP, it too is now rerouting tankers.

In the last few months, the economic narrative has been a happier one: that advanced economies are heading for soft-landings, inflation is on the verge of being contained and, before long, central banks will be lowering the cost of borrowing.

This is the reason that mortgage rates in the UK have been edging down in recent months, but the conflict in the Middle East threatens to upset those assumptions.

This morning, investors are still betting that the BoE will be begin cutting in June and that interest rates will have fallen to 4% by the end of this year.

But Mr Brown thinks the markets are wrong.

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