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UK inflation unexpectedly eased to 2.5 percent in December as the economy weakened, easing pressure on chancellor Rachel Reeves and clearing the way for the Bank of England to press ahead with interest rate cuts.

The consumer price index number was below November’s 2.6 percent reading. Analysts expect inflation to remain steady over the past month.

The data will provide some relief for Reeves, who is battling higher borrowing costs fueled by fears that the UK economy could be entering a period of stagflation.

On Tuesday, Reeves rejected calls for his resignation as his Conservative rival Mel Stride accused him of presiding over a “Shakespearean tragedy” after borrowing costs hit record highs. which is 16 years.

The Office for National Statistics report comes as the BoE’s Monetary Policy Committee prepares to hold its first meeting in 2025 early next month. Investors are betting that the central bank will cut rates a quarter-point to 4.5 percent.

Tomasz Wieladek, chief European economist at T Rowe Price, said the data was a “clear green light for another series of cuts”.

The BoE estimates that the economy will stagnate in the last quarter of 2024. Business surveys point to weaker confidence and hiring, which will curb inflationary pressures.

Wednesday’s data showed that services inflation, closely watched by the BoE as a measure of underlying price pressures, eased sharply to 4.4 percent from 5 percent previously.

Core inflation, which excludes food and energy, fell to 3.2 percent from 3.5 percent.

The pound weakened slightly after the release of the data, down 0.3 percent on the day at $1.218. Traders in the swaps markets gave a 60 percent chance of a quarter-point cut next month, according to levels before the data was released.

The central bank cut its key rate to 4.75 percent in two quarter-point moves last year.

Additional reporting by Ian Smith