UK inflation rises again, dampening hopes of interest rate cuts
Inflation in the UK increased for the second consecutive month, with prices in November rising at their fastest pace since March, according to official data. The inflation rate reached 2.6% over the past year, driven by higher costs for fuel, clothing, and entertainment, including gig and theater tickets.
The latest figures are likely to discourage the Bank of England from cutting interest rates when it meets on Thursday, analysts say.
“Inflation rose again this month as prices of motor fuel and clothing increased this year but fell a year ago,” said Grant Fitzner, Chief Economist at the Office for National Statistics (ONS). He noted that the rise was partially offset by airfares, which saw their steepest November decline since records began in 2000.
Chancellor Rachel Reeves acknowledged the ongoing struggles of UK households. “Today’s figures are a reminder that for too long the economy has not worked for working people,” she said, reiterating her commitment to alleviating financial pressures.
Despite the recent uptick, inflation remains well below its late 2022 peak. After steadily declining over two years, it fell below the Bank of England’s 2% target in September before rising again in October and November.
However, projections from the official forecasting body suggest inflation could climb back to 2.6% by 2025, partly due to measures introduced in October’s Budget.
Shadow Chancellor Mel Stride criticized the government’s economic policies, describing them as “irresponsible and inflationary.” He warned that higher inflation would lead to increased costs for households, reduced disposable income, and prolonged elevated mortgage rates.
In November, prices for food, non-alcoholic drinks, alcohol, tobacco, and footwear all rose at a faster pace. Housing and household services costs, including rent, surged by 3.5% over the past year.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, likened the persistence of inflation to “an unwelcome Christmas party guest” overstaying their welcome. “The question is whether it can be shifted or if it’s going to hang around to ruin our plans for months – eating us out of house and home,” she said.
For small businesses, rising costs are taking a toll. David Miller, who runs Miller’s Fish and Chips in Haxby, Yorkshire, described the year as “tough.”
“We’ve taken a hit with our bottom line because of fuel and utilities going up,” he said. “But I think the biggest challenge overall for any business is wages.”
Miller’s employs 60 people and aims to pay above the minimum wage. However, wage costs are set to rise further in April due to measures announced in the recent Budget.
The Bank of England faces a difficult decision on interest rates, balancing the need to combat inflation against the backdrop of a shrinking economy. Figures show the UK economy contracted in September and October, which would typically prompt a rate cut to encourage spending and investment.
However, rising prices and faster wage growth indicate that rates may need to remain at the current 4.75% to contain inflation.
“There is almost no chance of the Bank of England delivering an early Christmas present with another interest rate cut tomorrow,” said Paul Dales, Chief UK Economist at Capital Economics.
Capital Economics predicts inflation will dip in December but rise again in January, eventually nearing the Bank’s 2% target by the end of next year. As the UK grapples with inflationary pressures and economic stagnation, policymakers are under mounting pressure to balance the needs of households, businesses, and broader economic stability.
