Second, air fares. These are notoriously volatile, especially around Christmas. The rise in plane ticket prices was unusually muted at that point in 2024 and the fear was that a surge at the end of 2025 could temporarily push up services inflation, depending on the day the Office for National Statistics measured them. In the end, the rise was again relatively modest by historical standards.
Obviously, this is all just noise. And more importantly, we calculate the Bank of England’s preferred gauge of “core services” inflation – which excludes certain volatile/indexed categories – at 4%, as it has been for three months now.
That suggests nothing here is going to move the dial at the February Bank of England meeting. Officials will want to see more progress on services inflation. And given officials have hinted at a slower pace of cuts, we doubt the Bank will do anything other than keep rates unchanged at its next decision.
But as we said at the start, the inflation backdrop should look a lot better from April. A whole range of services prices are only updated once annually, at the start of the financial year. We already know that last year’s 25% rise in water and sewerage (the latter being a service) won’t be replicated to anywhere near the same extent this year. Nor are we seeing a repeat rise in vehicle duties. That and other more muted price rises this year should bring services inflation down from 4.5% in December to around 3% post-April.