The rate of Consumer Prices Index inflation fell to 2.5% in December from 2.6% in November, the Office for National Statistics said.
Most analysts had been expecting the inflation rate to remain unchanged at 2.6% last month.
However, December’s headline figure nevertheless remains above the Bank of England’s 2% target level which has raised concern for economists and policymakers amid stagnant economic growth.
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Confederation of British Industry principal economist Martin Sartorius said Chancellor Rachel Reeves’s hike in employers’ national insurance would contribute to inflation remaining “elevated” this year despite the slight fall.
“Inflation remained moderately above the Bank of England’s 2% target in December, reflecting the impact of ongoing price pressures such as strong wage growth,” he said.
“Looking ahead, we expect inflation will stay elevated this year, partly due to autumn budget measures contributing to higher prices.
“Persistent, above-target inflation supports our expectation that the Monetary Policy Committee will loosen policy at a gradual, quarterly pace throughout 2025.
“The next rate cut is still likely to come in February, which will bring some respite for businesses and households as they continue to face high borrowing costs.”
Reeves said she would “fight every day” to improve people’s living standards as she battles to keep her job amid claims of “stagflation” in the economy.
The Chancellor is said to be considering “ruthless” spending cuts, and has Keir Starmer’s support to do so.
She said: “There is still work to be done to help families across the country with the cost of living.
“That’s why the Government has taken action to protect working people’s payslips from higher taxes, frozen fuel duty and boosted the national minimum wage.
“In our plan for change, we were clear that growth is our number one priority to put more money in the pockets of working people.
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“I will fight every day to deliver that growth and improve living standards in every part of the UK.”
Grant Fitzner, the ONS’s chief economist, said: “Inflation eased very slightly as hotel prices dipped this month, but rose a year ago.
“The cost of tobacco was another downward driver, as prices increased by less than this time last year.
“This was partly offset by the cost of fuel and also second-hand cars, which saw their first annual growth since July 2023.”