Office for National Statistics (ONS) has reported that UK inflation rose to 2.6% in November, up from 2.3% in October. This increase matches market expectations and comes as the Bank of England prepares to make a crucial decision on interest rates later this week.
Core inflation, which excludes volatile items such as food and energy, also saw an uptick, rising to 3.5% from 3.3% in October. This was slightly below the anticipated figure of 3.6%. Meanwhile, services inflation, a key indicator closely watched by the Bank of England for domestic price pressures, remained steady at 5%, slightly below market expectations of 5.1%.
Earlier this year, falling inflation allowed the Bank of England's Monetary Policy Committee (MPC) to lower interest rates in August and November. However, the headline rate has been pushed higher recently by rising energy costs and persistent services inflation. Despite this recent uptick, it is widely expected that the Bank of England will keep interest rates on hold at its upcoming meeting. Markets remain divided on the likelihood of a rate cut in February.
Michael Brown, senior research strategist at Pepperstone, highlighted the challenges ahead, stating, “While risks to this base case are tilted towards a more dovish outcome, given increasing signs of overall economic momentum stalling, policymakers will be rapidly seeking convincing signs of disinflationary progress being made, as the economic cocktail facing UK Plc. increasingly becomes a stagflationary one.”
The inflation figures follow stronger-than-expected wage growth data, with average earnings, including bonuses, rising by 5.2%, exceeding the forecast of 4.6% and October’s figure of 4.4%.
Chancellor to the Exchequer Rachel Reeves acknowledged the ongoing struggles faced by households, emphasizing recent measures aimed at supporting workers. These include no increases to national insurance, income tax, or VAT, along with boosting the national living wage and freezing fuel duty. Reeves highlighted that real wages have grown at their fastest in three years, providing an extra £20 a week after inflation.
As the UK navigates these economic challenges, inflation is expected to rise further in the coming year. The country continues to take a more gradual approach to easing monetary policy compared to other developed central banks. The Bank of England's decisions in the coming months will be critical in shaping the economic landscape and addressing the cost of living concerns faced by many households.
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