LONDON – UK inflation came in slightly below expectations at 10.7% in November as refrigerated fuel prices helped ease price pressures, although high food and energy prices continued to weigh on households and businesses.
Economists polled by Reuters had forecast an annual CPI rise of 10.9% in November after an unexpected rise to a 41-year high of 11.1% in October. On a monthly basis, the rise was 0.4% in November, up from 2% in October and below a consensus estimate of 0.6%.
The Office for National Statistics said the biggest upward contributors came from “housing and household services (mainly from electricity, gas and other fuels) and food and non-alcoholic beverages”.
The biggest downside contributors over the month came from “Transport, particularly fuels, with rising prices in restaurants, cafes and pubs being the largest, partially offsetting upside contributors”.
The Bank of England will announce its next monetary policy move on Thursday. Interest rates are widely expected to be raised by 50 basis points as it juggles sky-high inflation and an economy that policymakers say is already in its longest recession on record.
The country faces widespread industrial action over the Christmas period as workers strike to demand wage increases closer to inflation and better working conditions.
The independent Office for Budget Responsibility forecasts that the UK will suffer the biggest drop in living standards on record, as real household income is expected to fall by 4.3% in 2022-23.
UK Treasury Secretary Jeremy Hunt last month announced a sweeping £55 billion ($68 billion) fiscal plan that includes a series of tax hikes and spending cuts to plug a significant hole in the country’s public finances.
A positive step, but risks remain
While the fall in Wednesday’s numbers is a step in the right direction, the ongoing problem of rising food prices and household energy bills remains a thorn in the side of the UK economy, noted Richard Carter, head of fixed interest research at Quilter Cheviot.
However, Carter hinted that inflation could finally peak after the US also released a better-than-expected CPI reading on Tuesday.
“Temperatures have dropped sharply in the last week or so and demand for gas will no doubt have increased as people are forced to heat their homes,” Carter added.
“As the autumn was rather mild, it is only now that we are beginning to see the real impact of higher energy bills. While government support remains in place for now, any changes made after the April deadline could have a knock-on effect on inflation.”
The Bank of England faces a tricky task as it tries to push inflation back towards its 2% target while remaining cognizant of a flagging economy. This was evident earlier this week in the latest UK jobs data, which showed a pick-up in both unemployment and wage growth.
“As inflation falls, it remains far ahead of wages and we are heading for another winter of discontent, with strikes consequently focusing on the unionized public sector and formerly nationalized industries,” Carter said.
The market is expecting a 50 basis point interest rate hike from the bank on Thursday, taking the benchmark interest rate to 3.5%. Policymakers have signaled a possible slowdown in the pace of rate hikes in 2023. However, inflation remains well above target.
“The Chancellor’s autumn statement in November helped calm the waves after months of significant turmoil, but inflation remains well above the bank’s 2% target, meaning there is still a long way to go,” Carter said.
“A rapid fall in inflation is highly unlikely, but it’s positive to see it finally moving in the right direction.”
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