UK Inflation Dips

Word for the Week:

Wabi-sabi: A Japanese term used in philosophy to describe imperfect beauty which also centres on the acceptance of transience.

UK Inflation Dips?

This morning, data from the ONS indicated that headline inflation in the UK dipped marginally to 2.5% in December. This came against expectations of a 2.7% print and disrupts a pattern which has seen the rate of inflation increase each month between September and November. Hence, today’s print will be a welcome sign for policy makers, particularly given that it comes in the wake of November’s figure which marked the index’s highest level in eight months.

General market sentiment has reacted positively to the print, given that headlines over the past week have been dominated by concerns over persistent inflation, dampened growth and unease over the government’s fiscal credibility. Such concerns have culminated, and been manifested, in yields on 30-year and 10-year UK treasuries rising to their highest level since 1998 and 2008, respectively. Yields on the UK 10-year are currently trading around 6bps lower than going into the print.

The ease in headline CPI came alongside service price inflation which fell from 5% to 4.4% while core inflation (annualised) eased to 3.2% on the year, below forecasts of 3.4% and below last month’s figure of 3.5%.

Meanwhile, the Consumer Prices Index including owner occupiers' housing costs (CPIH) remained unchanged at 3.5%. Given that this includes mortgages and council tax - which are excluded from the CPI – this is often considered a more comprehensive gauge of inflation, and its rise is indicative of the cost pressures still facing households.

Behind the headline figures, the ONS also indicated that price increases eased up for restaurants and hotels, with prices rising 3.4% in the 12 months to December. Additionally, deflation was seen across transport and air fares (the latter of which fell 26% on the year).

Attention now turns to the MPC next meeting on 6th February, where markets are increasingly raising their convictions that the BoE will conduct a rate cut. Presently, markets are pricing in around an 86% chance of a 25bps cut, upwardly revised from a 64% chance being priced in yesterday.

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Russia’s oil export industry slapped with US sanctions

Last Friday, in one of Bidens final acts of his four year tenor in the Whitehouse, his administration imposed it’s largest package of sanctions on Russian oil and gas revenues. Sanctions, most notably, fell heavily upon Gazprom Neft and Surgutneftegas. Between them, their tanker fleet spans 183 vessels wide.? Its purpose? A calculated ploy to provide leverage to Kyiv and the incoming Trump Administration. John Kirby, a National Security Council Spokesperson posited “oil markets are in a fundamentally better place” which henceforth attributed to the timing and severity of the sanctions.

Upon announcement, Brent Crude oil prices jumped 2.93% on the day, eclipsing just shy of $90 per barrel on Monday.?

Zelensky, the president of Ukraine expressed his gratitude, stating “These measures deliver a significant blow to the financial foundation of Russia’s war machine by disrupting its entire supply chain.” 2025 introduces the 4th year since Russia’s full-scale invasion began as well as Trumps second term in office. The return of Trump and his Republican party, coupled with Bidens' new sanctions, has reignited a spark of hope that a diplomatic resolution may be on the horizon.

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South Korean President Arrested

After weeks of political turmoil and a standoff between presidential security forces and anti-corruption investigators, South Korea’s President Yoon Suk Yeol has been arrested.

The arrest follows the South Korean parliament impeaching the President in the wake of his attempts to declare martial law on 3rd December.

Yoon has been the subject of considerable controversy in recent months, with events in the run up to his martial law declaration being marked by disputes over South Korea’s budget, not least given that opposition parties demanded cutting USD $2.8bn from Yoon’s proposals.

A Constitutional Court will now rule on Yoon’s impeachment.