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THE UK’s rate of inflation fell to 10.5% in December, as petrol prices dropped easing some of the pressure on people's finances.
Data from the Office for National Statistics (ONS) reveals the annual rate has fallen from 10.7% in November.
Inflation is a measure of how the price of goods and services have changed over the past year.
It has eased slightly since the eye-watering 41-year high of 11.1% seen in October, but is still close to a 40-year high.
Prices are still rising, but at a slower rate than last month.
The slowdown is good news for stretched households, and some experts believe inflation has now peaked.
The ONS said that a drop in the price of fuel was part of the reason for the fall, as well as the costs of clothes also dropping back slightly.
But, this was off-set by increases for coach and air fares, as well as overnight hotel accommodation.
Food costs continue to spike with prices also rising in shops, cafes and restaurants, the ONS said.
Grant Fitzner, chief economist at the ONS said: “Inflation eased slightly in December, although still at a very high level, with overall prices rising strongly during the last year as a whole.
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“Prices at the pump fell notably in December, with the cost of clothing also dropping back slightly.
“However, this was offset by increases for coach and air fares as well as overnight hotel accommodation.
“Food costs continue to spike, with prices also rising in shops, cafes and restaurants.”
On a monthly basis, inflation rose by 0.4% in December 2022, compared with a rise of 0.5% in December 2021.
Inflation figures are used by some mobile and broadband companies to hike prices.
Rocio Concha, Which? director of policy and advocacy, said: “With households up and down the country struggling to make ends meet, many people will be worried that the cost of everyday essentials continue increasing.
"Several telecoms companies use CPI to calculate mid-contract price rises.
"This means millions of broadband and mobile customers could now find themselves trapped in a lose-lose situation where they either have to accept exorbitant mid-contract price hikes this Spring or pay costly exit fees to leave their contract early."
Petrol prices hit a record high over the summer but have since fallen, easing pressure on motorists.
Overall, the ONS said fuel prices rose by 11.5% in the year to December 2022, down from 17.2% in the year to November.
While food and drink inflation soared yet again, to 16.8% in December up from 16.4% in November, marking the highest level since September 1977.
Chancellor of the Exchequer Jeremy Hunt said: “High inflation is a nightmare for family budgets, destroys business investment and leads to strike action, so however tough, we need to stick to our plan to bring it down.
“While any fall in inflation is welcome, we have a plan to go further and halve inflation this year, reduce debt and grow the economy – but it is vital that we take the difficult decisions needed and see the plan through.
“To help families in the meantime, we are providing an average of £3,500 of support for every household over this year and next.”
What does it mean for my money?
Falling inflation indicates that the cost of goods and services are still rising but at a slower rate.
Prices are still higher than they were.
Food and drink prices rose by 16.9% in the 12 months to December 2022, up from 16.5% in November.
Alice Haine, personal finance analyst at Bestinvest, said that the fall in inflation "will offer hope" to consumers.
Ms Haine said: “A retreating headline inflation rate will certainly offer hope to consumers that the financial squeeze is starting to ease – strengthening the sentiment that inflation has passed its peak, after hitting a 41-year high of 11.1% in October and will fall rapidly over the course of this year."
Experts believe the slowdown in the rate of inflation is unlikely to stop the Bank of England from hiking interest rates once more at its February meeting as it looks to rein in wider cost pressures in the economy, with workers still demanding higher wages.
Samuel Tombs at Pantheon Macroeconomics is forecasting another 50 basis points rise next month, which would take rates from 3.5% to 4%.
He said: “December’s CPI data should enable the MPC (Monetary Policy Committee) to revise down its forecast for CPI inflation materially next month.
“But with year-over-year growth in wages still too rapid, we think it will press on and raise Bank Rate by 50 basis points in February, before standing pat in March, when clearer evidence should have emerged that labour market slack is increasing.”
The latest figures follow the news yesterday that regular pay in real terms fell by 2.6% in September to November.