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UK inflation accelerated to 2.6 per cent in November, highlighting the challenge facing the Bank of England as it grapples with persistent price pressures and economic stagnation.
The rise in the consumer price index was higher than… 2.3 percent recorded in October But in line with expectations. Rising prices for motor fuel and clothing helped push inflation higher, according to figures released by the Office for National Statistics on Wednesday.
The increase comes ahead of the Bank of England's monetary policy committee meeting on Thursday, which is widely expected to keep interest rates at 4.75 percent, after cutting borrowing costs twice this year.
GDP has contracted for two straight months, while business surveys point to weakening confidence and reduced hiring intentions following Rachel Reeves' tax hike budget in October. But inflation is rising and rebounding in the UK Wage growth Hopes for a rate cut were dashed at the Bank of England's last meeting this year.
Suren Thero, economics director at the Bank of England, said November's CPI numbers “extinguish any lingering hopes of a rate cut on Thursday, while concerns about escalating inflation risks, including a recent pick-up in wage growth, mean easing… February is not a done deal.” ICAEW
After the release of the data, there was little change in the pound sterling at $1.27. Investors ruled out the possibility of a rate cut on Thursday, according to levels indicated by swap markets, and expect only two cuts next year.
Core inflation, which excludes energy, food, alcohol and tobacco, was 3.5 percent in November, higher than the 3.3 percent recorded in October, Office for National Statistics data showed.
Services inflation, which the central bank closely monitors as a measure of underlying domestic price pressures, reached 5 percent in November, matching October's figure but below analysts' expectations of 5.1 percent.
Governor Andrew Bailey said Bank of England The European Central Bank will continue to ease policy gradually, but officials have cited persistent services inflation as a reason for caution.
Claire Lombardelli, Deputy Governor He said Writing in the Financial Times in November, she expressed concern that service price inflation remained “well above” rates consistent with the Bank of England’s 2 per cent target.
November's services price reading was slightly above the Bank of England's forecast of 4.9 per cent.
Inflation has fallen sharply from its peak of 11.1 per cent in October 2022, but the Bank of England now faces an uptick at a time of mounting pressure on the economy. Paul Dales, of Capital Economics, said he now expected inflation to be around one point above the 2 per cent target early next year. CPI growth was only 1.7 percent through September.
Alongside signs that the Budget has had a negative impact on businesses' employment plans, the Bank of England is assessing whether the increase in National Insurance contributions to be paid by businesses announced by Reeves will add to inflationary pressures.
The increase in Employers' National Insurance will be felt acutely by service businesses given the weight of staff costs on their balance sheets. “This raises the question of how low services inflation will be,” warned Andrew Wishart of Berenberg Bank. He added that historically, a 3 percent increase in service prices has been consistent with the inflation target, “which currently appears out of reach.”
Mel Stride, the Conservative shadow finance minister, accused Reeves of making “a series of irresponsible and inflationary decisions” that would leave inflation higher than expected earlier this year.
In a statement issued on Wednesday, Reeves said: “I know families are still struggling with the cost of living, and today’s numbers are a reminder that the economy has not worked for working people for a long time. I am fighting to put more money in the pockets of the working class.”
