How will drop in inflation affect plans to raise UK interest rates?

Bank of England must proceed with caution as households are still cutting back and business confidence is weak

• UK inflation dips slightly to 10.5%
• UK inflation: how everyday items and services shot up in price
• Baker Warburtons battles soaring food inflation

There is hope for households across Britain that inflation, finally, has peaked. After hitting a 41-year high of more than 11% in October as energy bills soared, the fall in the annual inflation rate in December for a second consecutive month will come as a relief.

However, prices remain high and are still rising fast. Lower inflation rates do not mean prices are falling for consumers; it is just that they are not rising quite as fast as a month ago. The cost of living crisis may be fading but it is very far from over.