UK CPI drops to 10.5 in Dec from 10.7 in Nov
Food and drink prices rise at fastest since 1977
Services prices rise at fastest rate since 1992
Markets see BoE raising rates to 4 in Feb
Finance minister says high inflation is a nightmare

LONDON, Jan 18 Reuters British inflation eased last month after hitting a 41year high in October, offering some comfort to the Bank of England, but the pressure on households remained intense as food and drink prices rose at the fastest pace since 1977.

Annual consumer price inflation fell to 10.5 in December from November39;s 10.7, the Office for National Statistics said on Wednesday, a drop in line with economists39; forecasts in a Reuters poll.

However, while lower prices for petrol and clothing pushed down the headline rate, the cost of food and nonalcoholic beverages was 16.8 higher than a year earlier, the sharpest increase since September 1977, led by eggs, milk and cheese.

The Bank of England forecast in November that headline CPI would drop from a peak of 11.1 last October to around 5 by the end of 2023 as energy prices stabilise.

But policymakers have warned of continued upward pressure on inflation from a tight jobs market and other factors, and financial markets expect the central bank to raise its main interest rate to 4 on Feb. 2 from 3.5.

The lower overall CPI rate … may reduce the risk of a wageprice spiral, but these figures suggest the BoE39;s job is not yet done, HSBC senior economist Liz Martins said….