Inflation rose unexpectedly in December in a blow to Rishi Sunak after the prime minister suggested the economy had “turned a corner”.
Consumer Prices Index inflation rose to 4 per cent in December from 3.9 per cent in November, the Office for National Statistics (ONS) said.
Labour said the rise in inflation was “bad news for families who are worse off after fourteen years of economic failure”.
Shadow chancellor Rachel Reeves said: “Prices are still rising in the shops, with the average weekly shop £110 more than it was before the last general election, and the average family set to be £1,200 worse off under Rishi Sunak’s tax plan.”
And the Liberal Democrats said the increase would worry people across the country “seeing their pay stretched as the cost of living crisis continues to rage on”.
Treasury spokesman Sarah Olney said: “Let’s be clear, after years of mismanagement and mayhem, this Conservative Government must do far more to get our economy back on track.”
But the chancellor insisted “the plan is working and we should stick to it”.
Jeremy Hunt insisted the ‘plan is working’ despite the increase in inflation
Jermy Hunt added: “As we have seen in the US, France and Germany, inflation does not fall in a straight line.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
Wednesday’s figure means inflation stands at double the Bank of England’s 2 per cent target for inflation.
ONS chief economist Grant Fitzner said: “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.
“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.
“Meanwhile, the prices of goods leaving factories are little changed over the last few months while the costs of raw materials remain lower than a year ago.”
He added that the inflation figure would have stayed flat at 3.9 per cent without the rises in tobacco prices.
The rate at which prices are rising was expected to fall to 3.8 per cent in December, and the shock increase dampens the prospect of the Bank of England cutting interest rates.
The central bank hiked interest rates from 0.25 per cent at the beginning of 2022 to 5.25 per cent in August in a bid to bring spiralling inflation under control.
And positive economic data at the end of last year led to expectations interest rates could fall back to 4.25 per cent by the end of 2024.
A dip in interest rates would be a boost to homeowners, who have been hit with huge increases in mortgage payments as a result of the Bank of England’s hikes.
It comes after alcohol and tobacco inflation hit a high of more than 31 years last month, at 12.8 per cent, largely following the increased tobacco duty in November.
This offset further falls in food prices, which fell back to 8 per cent last month – down from 9.2 per cent in November and the lowest rate since April 2022.
There are also concerns over the impact of the Red Sea shipping attacks on inflation, as it threatens to push up the cost of oil, gas and goods being imported to the UK.
The latest official figures show tobacco prices surged by 16 per cent year-on-year last month while alcohol inflation hit 9.6 per cent.
Mr Hunt announced the hike in tax on tobacco in last November’s autumn statement, which came hot on the heels of a cigarette duty hike in April of last year.
There was some relief for households as food prices eased back sharply once more, coming back down further from 45-year highs seen in 2023.
The ONS said prices also fell at the fuel pumps, with the average price of petrol down by 8.2p a litre between November and December to stand at 142.8p.
Diesel prices fell by 7.6p a litre this year to stand at 151.4p.
The figures showed that air fares rose as usual between November and December, up by 57.1 per cent, compared with a 61.1 per cent rise a year ago.
The annual rate for air fares was 0.8 per cent in December.
The Trades Union Congress, which represents Britain’s major unions, said family budgets remain “under the cosh”.
General secretary Paul Nowak said: “Prices are still going up with inflation at double the Bank of England’s target. And whether it’s covering the weekly shop or paying the bills, families remain under the cosh.
“If real wages had grown at their pre-crisis trend the average worker would be earning around £15,000 a year more.”
