UK inflation rose to 2.6% in the year to November up from 2.3% in October, driven by higher fuel and clothing prices – and the highest inflation rate in eight months, further straying from the Bank of England’s 2% target.
Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, says: “Inflation edged up to 2.6% in November, after dropping as low as 1.7% in September.
“Strengthening inflationary pressures are likely to concern policymakers ahead of the Bank of England’s Monetary Policy Committee (MPC) meeting tomorrow.
“This latest uptick stems partly from unusually weak fuel and goods price inflation in November 2023 no longer factoring into annual calculations. Higher fuel prices, alongside increases in clothing, second-hand cars, and recreational items, also contributed to the rise.”
SERVICES INFLATION UP
Batstone-Carr also highlighted an increase in services inflation, closely monitored by the Bank of England. Services prices rose 5%, exceeding the Bank’s forecast of 4.9%.
He adds: “This outcome reinforces expectations that the MPC will hold off on rate cuts at today’s meeting.
“Financial markets, having abandoned hopes for a year-end base rate reduction, will interpret today’s data as a signal of gradual rate cuts over 2025.
“While the Bank of England may aim to support the weak economy, any easing of monetary policy will depend on inflationary pressures easing sufficiently to avoid reigniting price rises.”
LITTLE FESTIVE CHEER
Nick Hale, Chief Executive of Movera, says: “There is little festive cheer which marks the second consecutive month that inflation has risen.
“Driven by higher energy costs and services inflation, the figure is even further adrift from the Bank of England’s target. Christmas is unlikely to come early either, as the Bank of England’s Monetary Policy Committee is predicted to hold off on lowering interest rates.
“It would be good to think that the rise is a temporary blip. But there are too many unknowns, including the longer-term impacts of the Government’s Budget which has so far rattled business confidence.
“What is certain is that we are still in the midst of a housing crisis. To give homebuyers a much-needed confidence boost, we can only hope that the Bank of England’s New Year resolution will be to lower interest rates as soon as it can.”
WARNING TERRITORY
And Peter Stimson, Head of Product at MPowered Mortgages, adds: “This is not the Christmas present the Bank of England wanted.
“Inflation is surging deeper into warning territory and the Bank’s efforts to hold CPI at 2% are unravelling fast.
“Optimists will cling to the idea that November’s surge in inflation was widely expected, and is partly the fault of a one-off jump in energy bills.
“But no-one should expect the rising inflationary pressure to ease on its own. Core inflation, which strips out volatile factors like energy and food costs, continues to ratchet up and now stands at 3.5%.”
WAGE INFLATION RISING
“Separate data published by the ONS [this week] showed wage inflation is rising for the first time in a year, which will also feed into consumer inflation in coming months.
“In response the Bank of England’s approach to interest rates will need to be far more hawkish than many had hoped.
“The next reduction in the Bank’s base rate – which the markets had expected to be in early 2025 – may now come later.”
He adds: “This will be a worry for anyone planning to buy their first home or remortgage in the New Year. While mortgage lenders will try to trim their interest rates in January in an effort to win borrowers’ business, their ability to do so will now be severely constrained.
“The Bank of England’s battle against inflation is back on and the prospect of cheaper mortgages is off the table for now.”
