On a monthly basis, the Consumer Prices Index (CPI) measure of inflation rose by 0.4% in December 2022, compared with a rise of 0.5% in December 2021.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to December 2022, down from 9.3% in November.

The ONS said the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between November and December 2022 came from transport (particularly motor fuels), clothing and footwear. 

However, it added that higher prices in restaurants and hotels, and for food and non-alcoholic beverages, was pushing inflation up. 

‘Optimism that inflation has peaked’

Annabelle Williams, personal finance specialist at Nutmeg, said: “The high cost of living was never far from the headlines in 2022 as inflation soared to levels last seen in the 1980s. 

“A surge in pent-up demand for goods following the Covid pandemic and shipping problems internationally had already created some inflation as the year began, before Russia’s invasion of Ukraine pushed global gas and oil prices higher, fuelling inflation further. Consumer price inflation reached 11.1% in October and in November came in at a more muted 10.7%. 

“This latest update will be closely watched for signs of optimism for the months ahead.  The good news is that energy prices have softened, with wholesale gas costs closer to levels before Russia’s invasion of Ukraine, which should start to be reflected in the figures.” 

Daniel Casali, chief investment strategist at Evelyn Partners, said the reading will encourage the belief that UK inflation has peaked. He said: “Another slowing in annual inflation – the second since October’s peak of 11.1% – will add to the newfound sense of optimism in the UK economy, triggered by last week’s surprisingly positive monthly GDP growth data. 

“But these are fairly marginal decelerations in prices, inflation remains elevated and together with likely negative annual GDP growth in 2023 this remains a risk for both markets and households.”