LONDON – British inflation fell to a lower-than-expected 2.5% in December, data from the Office for National Statistics showed on Wednesday, with core price growth slowing further.

The consumer price index (CPI) rose to 2.6% in November, and economists polled by Reuters expected the December figure to remain unchanged.

Core inflation, which excludes volatile food and energy prices, was 3.2% in the 12 months to December, down from 3.5% in November.

British inflation hit a more than three-year low of 1.7% in September, with monthly prices rising since then as rising fuel costs and service charges rose faster than commodity prices. Annual service sector inflation was 4.4% in December, down from 5% in November.

this GBP It rose 0.1% against the dollar at 08:15 a.m. London time, reversing initial losses earlier in the session after Data release.

The data will be worth the BoE’s careful consideration ahead of its next meeting on February 6. Despite inflationary pressures such as strong wage growth and uncertainty about the UK’s economic outlook, the Bank is expected to cut its key interest rate to 4.5% from 4.75%. The central bank’s inflation target is 2%.

The British economy has been in trouble recently, and economists are concerned about the following issues The country’s growth prospects are bleak and concerns about headwinds from external factors, such as the potential for trade tariffs if President-elect Donald Trump takes office, and Internal fiscal and economic challenges have dogged the Labor government and the Treasury since the October Budget.

British Chancellor of the Exchequer Rachel Reeves said in response to the latest data on Wednesday that “there is still work to be done to help households across the country reduce the cost of living” and that economic growth is the UK’s top priority.

Ruth Gregory, deputy chief UK economist at Capital Economics, commented that the data would be “good news” for Rachel Reeves, with underlying price pressures appearing to “More favorable than we thought.”

She said in emailed comments that the data strengthened the case for a 25 basis point rate cut by the Bank of England in February, “and provides some support for our view that rates will fall further and faster than markets expect.”

“Our forecast is that CPI inflation will rebound in January, perhaps to nearly 3.0%, and that inflation in the first half of the year will be slightly higher than most expect. But we expect it to fall below the 2% target next year, Because the persistence of inflation weakens further,” she said.

Britain’s borrowing costs and currency also weakened amid concerns over the country’s economic outlook and fiscal plans, That puts Treasury Secretary Rachel Reeves’ ambitions to balance the budget in a quandary.

Reeves has vowed to abide by self-imposed fiscal rules to ensure all day-to-day spending is met by revenue and government debt is on a downward trend. She may now be forced to decide whether to adjust or break those limits.

The choice she faces is to take no action and hope that unfavorable borrowing conditions subside, raise taxes further (a move that is likely to attract more criticism from business and the public), or cut public spending (a step the government has proposed but would be contrary to Labour’s anti-austerity stance last weekend. Reeves says fiscal rules set out in budget are ‘non-negotiable’ And added, “Economic stability is the cornerstone of economic growth and prosperity.”

Ben Zaranko, deputy director of the Institute for Fiscal Studies, said Reeves faced “a pretty enviable set of choices.”

“This unfortunate predicament is largely the result of financial inheritance difficulties and global economic factors,” he said in comments.

“But it also reflects a series of government choices and mutually incompatible commitments: insisting on strict, digital fiscal rules while retaining only the best profits; prioritizing public services and avoiding another round of austerity; not Raise the biggest tax in the fiscal budget and not raise it again after the autumn budget; and hold only one fiscal event a year, and if higher interest rates eliminate the so-called “headroom”, then something has to give,” Zaranko added.