UK inflation unexpectedly fell to 2.5% in December, providing some economic respite to both consumers and the government.
The rate of Consumer Prices Index inflation fell to 2.5% in December from 2.6% in November, the Office for National Statistics (ONS) said – despite most analysts having predicted rate of inflation would remain unchanged.
However, while the cost of living will be ever so slightly eased for Britons still struggling with rising food and energy prices, those on universal credit will feel the benefit less.
Universal credit payments are due to rise in April – but as this is based on last September’s unusually low inflation rate, this rise will only be 1.7%.
Here, Yahoo News UK outlines what inflation means for those relying on universal credit.
What is inflation?
Inflation is the rate at which the general level of prices for goods and services in an economy increases. To put this into context, if inflation is 2%, a basket of goods that cost £100 last year would cost £102 this year.
The latest figures from the ONS show UK inflation fell to 2.5% for December 2024 from 2.6% in November. This follows a period where inflation hit a 41-year high of 11.1% in October 2022, largely due to global supply chain issues, soaring energy prices after the Russian invasion of Ukraine, and the effects of COVID lockdowns.
Inflation fell slightly in December following several years of record highs. (PA)
Since then, inflation has gradually been falling until it hit 2% in May 2024 before slightly rebounding.
This recent drop to 2.5%, while welcome, nevertheless indicates ongoing pressures on living costs.
The Bank of England (BoE) has been monitoring these figures closely, adjusting interest rates to manage inflation towards their 2% target.
How does inflation impact universal credit payments?
For those who claim universal credit payments, the benefits they receive are normally adjusted each April based on the CPI from the previous September.
The 2025 uprating was pegged at 1.7%, reflecting the lower September 2024 CPI rate.
However, this adjustment doesn’t account for subsequent inflation changes. Even though inflation dropped to 2.5% by December, this still exceeds the 1.7% increase in benefits, meaning the added help of universal credit payments is not felt if living costs rise faster than benefits.
To make things worse, experts are predicting a rise in inflation in the coming months – further adding to the pressure of those on universal credit. The Institute for Fiscal Studies (IFS) has said that with energy price caps set to increase and the minimum wage set to go up on April, inflation could climb again.
Universal credit claimants will see their payments affected by inflation. (PA)
Paul Johnson, director of IFS, told The Guardian: “While inflation has eased to 2.5% in December, we must be cautious as there are signs that inflation could rise again in the coming months, particularly if energy prices rebound or if there are significant wage increases.”
The BoE also forecast in early November that inflation would be 2.5% in December before rising to around 2.75% in the second half of 2025.
Sanjay Raja, Deutsche Bank’s chief UK economist, told Reuters: “Are we on a linear path down for inflation? We don’t think so.”
What do experts say?
Iain Porter, senior policy advisor at the Joseph Rowntree Foundation (a charity focused on tackling poverty in the UK), told Yahoo News last month that the government could use later inflation rates than September’s. He said: “There’s no reason they couldn’t use, say, the December inflation rate, which would make sure inflation would match a bit better.
“But the system we have is the system we have. That caused problems a few years ago when we had such a surge in the cost of living.”
James Smith, research director at the think tank, welcomed the slight drop in inflation but warned: “Big cost of living pressures remain.”
Of course, cost of living pressures are far from over. For starters inflation is still elevated – this chart shows you that price rises came down a lot in 2024 BUT were still larger than in all but 10 of the past 30 years! pic.twitter.com/R1LkwhGtsc
— JamesSmithRF (@JamesSmithRF) January 15, 2025
He wrote on X: “Of course, cost of living pressures are far from over. For starters inflation is still elevated…
“The high cost of essentials – which have risen by much more than the overall price level – will be with us for the foreseeable future.”
Danny Sriskandarajah, chief executive of the New Economics Foundation, said: “Inflation rates may have fallen but that’s likely to make little difference to the millions of people in this country struggling to afford the essentials – many of whom are also being hammered by high interest rates….
“The government should boost people’s incomes via the social security system, and tax the wealthiest to help pay for it.”