UK inflation pushes higher to reach 2.6%

UK inflation reached 2.6% in November, official data showed on Wednesday, the second consecutive monthly rise.

According to the Office for National Statistics, consumer price inflation rose in the 12 months to November to 2.6%, up from 2.3% in October.

Largely in line with expectations, it was the highest print since March.

The ONS said the prices of motor fuel and clothing had driven the increase, although that had been partially offset by a bigger-than-normal fall in air fares.

Although fares traditionally dip around this time of year, the decline was the largest drop in November since records began.

On a monthly basis, CPI rose by 0.1%, compared with a fall of 0.2% a year previously.

Core CPI, which strips out the more volatile elements of energy, food alcohol and tobacco, rose by 3.5% in the 12 months to November, up from 3.3% in October.

Including owner occupiers’ housing costs, CPIH was 3.5%, against the previous month’s 3.2% rise.

Factory gate prices, meanwhile, fell 0.6% in November, compared to October’s revised 0.9% decline.

The Bank of England meets tomorrow to make its latest decision on interest rates and is widely expected to keep the cost of borrowing on hold at 4.75%, despite inflation being above its 2% target.

The Monetary Policy Committee has trimmed rates twice this year, but remains hesitant about sticky services inflation. The ONS said the CPI services annual rate was unchanged in November at 5.0%.

GDP has shrunk for two consecutive months now, and consumer confidence is faltering.

However, alongside the latest increase in inflation, official data earlier this week showed a pick-up in wage growth, meaning analysts widely expect the BofE to leave rates unchanged.

Danni Hewson, head of financial analysis at AJ Bell, said: “While prices naturally rise and fall, meaning the increases in fuel and clothing costs aren’t really a cause for specific concern, it’s the stickiness of service sector inflation that will be drawing the attention of BofE rate setters.

“Even before today’s CPI data and yesterday’s wage data, markets had already priced out a December cut, which had seem almost inevitable back in early autumn.”

Matt Swannell, chief economic advisor to the EY Item Club, said: “Much of the easy progress on inflation has now been made. The drag from falling energy prices is receding and is likely to disappear altogether by the spring.

“Similarly, weak core goods readings in late 2023, as supply chains normalised, have weighed on core and headline inflation over the past year.

“But these effects are waning, and core goods inflation is on the rise, with a stronger dollar following the US presidential election outcome adding to the upward pressures.

“While services inflation should gradually slow on the back of easing domestic inflationary pressures, the EY Item Club still expects CPI inflation to remain above the 2% target in 2025.”