Food and petrol rises are set to see the cost of living edge higher when official figures are released on Wednesday.
Consumer price inflation is forecast to lift to 2.7% in December from 2.6% when the Office for National Statistics releases its data, according to Deutsche Bank.
Pump prices are predicted to lift by 1.2% over the month, says the investment bank, while research group Kantar says that grocery price inflation picked up by 3.7% over the same period.
Deutsche Bank adds that private rent prices eased to a 0.6% rise in December from 0.8% in November.
The investment bank also expects “inflation to push higher over 2025″ driven by increases to the national living wage and employer National Insurance contributions, as well as food and energy rising prices.
These rises will put Bank of England governor Andrew Bailey’s December comments on the expectations of four rate cuts this year under pressure.
Many in the market now forecast just two central bank cuts in 2025 from the base rate mark of 4.75%.
Markets put the chances of a quarter-point cut at the Monetary Policy Committee’s first meeting of the year, on 6 February, at 64%.
However, Goldman Sachs still predicts that the central bank “will continue with quarterly cuts through the year” to boost a flagging economy, while acknowledging that these are more “rate cuts than currently priced”.
The UK economy showed zero growth between July and September, according to revised official figures last month.
Hargreaves Lansdown head of personal finance Sarah Coles says: “Higher inflation isn’t great news for mortgage borrowers, but it’s unlikely to heap significantly more misery on them either, because this is largely priced into current deals.
“Because the two-year fixed rate market is relatively reactive to inflation data, it may rise from its current position, just under 5.5%, to a point just over it, but it’s not going to transform the mortgage landscape.
“This is what it has been doing for a couple of months now. Variable rate borrowers, meanwhile, still have the hope of a rate cut in February, but recent experience will tell them not to get carried away with optimism.”
