Why does the slight decline in inflation matter to you?

A slight decline in the core rate of inflation will generally not determine much, if anything.

Inflation is increasing by 2.5% Instead of 2.6%, macro economics doesn’t change much, nor do households feel the cost of living decline. This decline is entirely due to the decline in hotel prices and lower than normal increase in airfares in December.

But this unusually significant 0.1% decline signals relief, and some relief for Chancellor Rachel Reeves, because of what underpins it.

Underlying inflation numbers, which show where price pressures are going over the course of the year, are most keenly watched by the Bank of England in case it cuts interest rates.

Core inflation, which strips out the direct impact of volatile energy and food prices, is now at a four-year low, falling to 3.2% from 3.5% in December. Services inflation is at a two-year low of 4.4% after falling sharply from 5%. This is real positive news.

For real idiots, inflation in supply chains including services also indicates subdued inflation pressures.

The inflation picture in Britain can therefore be presented in a different light. Although no one can predict exactly how the Bank of England will respond, it appears to have cleared up objections to an interest rate cut next month. The market remained bullish this morning and now further rate cuts are being predicted after February this year.

However, there are two big uncertainties – whether President-elect Trump will bring in tariffs on the scale he has threatened, and how companies in the UK react to the upcoming increase in National Insurance Contributions (NICs) in April and an increase in the minimum. Salary. Energy bill prices are also predicted to rise in April.

Tariffs and upcoming changes to NICs and the minimum wage may not be as problematic for the UK economy as some are warning.

While some companies are expecting companies to raise prices as a result of budget changes, some companies may also opt to cut salaries with lower annual salary increases than expected. The overall inflationary impact depends on how companies react and the truth is that we don’t know yet.

Similarly Trump’s tariffs are likely to be inflationary for the US and hence will affect US interest rates. But some at the Bank of England could see a scenario where low-tariff imports, for example from China, are diverted to the UK, helping to curb UK inflation.

What actually happens is again uncertain but the outcome may be opposite to what people expect.

So the modest decline in UK inflation for the time being could be seen as an incendiary event, putting an end to the frothy frenzy seen over the past few weeks. Those who underestimate the UK in international markets will see that there is another side to this bet. UK inflation is in the middle of the G7 pack.

That said, what has been termed the global “bond market tantrum” is sensitive to every new piece of data. The UK government has still to agree the details of the development plans. This will mean fast-tracking infrastructure, industrial and trade strategies.

Market borrowing rates remain at levels where the Chancellor will need to correct spending plans with new cuts before Easter to meet his self-imposed borrowing rules.

The shadow of Donald Trump’s unconventional trade policies looms over inflation prospects and hence all markets.

The unrest has not gone away. Inflation is likely to rise again in the coming months. But for now the headline and underlying inflation numbers in the UK are all pointing in the right direction. For now it is a welcome safe harbour, but the seas remain choppy.