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UK inflation accelerated to 2.6 per cent in November, underscoring the challenge facing the Bank of England as it grapples with persistent price pressures and a stagnant economy.
The increase in the consumer price index was in line with economists’ expectations and above the 2.3 percent recorded in October. Higher prices for motor fuel and clothing helped boost inflation, according to figures from the Office for National Statistics on Wednesday.
The increase comes ahead of a meeting of the Bank of England’s Monetary Policy Committee on Thursday, at which it is expected to keep interest rates at 4.75 percent, after cutting borrowing costs twice this year.
GDP has contracted for two consecutive months, while business surveys point to weaker confidence and reduced hiring intentions following the tax increase in Rachel Reeves’ October budget. But a rebound in wage growth in the UK has dashed hopes of an interest rate cut at the Bank of England’s final meeting of the year.
The November figure “extinguishes any lingering hopes of an interest rate cut on Thursday, while concerns about rising inflation risks, including the recent surge in wage growth, mean an easing in February is not a deal.” closed,” said Suren Thiru, chief economic officer at Accountants. ‘ body the ICAEW.
After the data was released, sterling fell 0.1 percent to $1.269. Investors have all but ruled out the prospect of an interest rate cut on Thursday, based on levels implied 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, ONS data showed, up from 3.3 percent in October.
Services inflation, closely watched by the central bank as an indicator of underlying pressures on domestic prices, was 5 percent in November, matching October’s figure but below analyst expectations of 5. 1 percent.
Governor Andrew Bailey has said the Bank of England will continue to ease policy gradually, but officials have pointed to the persistence of services inflation as cause for caution.
Clare Lombardelli, deputy governor, told the Financial Times in November that she was concerned that services price inflation had remained “well above” rates consistent with the Bank of England’s 2 percent target.
November’s services price reading was slightly above the Bank of England’s own forecast of 4.9 percent.
Inflation has fallen sharply from a peak of 11.1 per cent in October 2022, but the Bank of England now faces a spike at a time of growing strain on the economy.
Adding to signs that the Budget has had a chilling effect on businesses’ hiring plans, the Bank of England has said it is assessing whether the increase in national insurance contributions paid by businesses announced by Reeves will increase pressures. inflationary.
Following the release of November’s inflation figures, Reeves said: “I know families are still struggling with the cost of living and today’s figures are a reminder that for too long the economy has not worked for workers.”
