LONDON — UK inflation was slightly below expectations at 10.7% in November as cooling 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 increase in the consumer price index of 10.9% in November after October saw an unexpected climbing to a 41-year high of 11.1%. On a monthly basis, the increase in November was 0.4%, compared to 2% in October and below the consensus estimate of 0.6%.
The Office for National Statistics said the biggest contributions came from “housing and household services (mainly from electricity, gas and other fuels) and food and non-alcoholic drinks”.
The biggest contributor to the decline in the month came from “transport, particularly motor fuels, with rising prices in restaurants, cafes and pubs making the largest, partially offsetting upward contribution.”
The Bank of England will announce its next monetary policy move on Thursday. It is widely expected to raise interest rates by 50 basis points as it juggles skyrocketing inflation and an economy that policymakers say is already in its the longest recession in history.
The the country is facing widespread industrial action over the Christmas period as workers strike to demand pay rises closer to inflation and better working conditions.
The independent Office for Budget Responsibility has predicted that the UK will suffer its biggest drop in living standards since records began, as real household income is expected to fall by 4.3% in 2022-23.
UK Chancellor of the Exchequer Jeremy Hunt last month announced a sweeping £55 billion ($68 billion) fiscal plan, including a raft of tax increases and spending cuts, in a bid to plug a significant hole in the country’s public finances.
A positive step, but risks remain
While the drop in Wednesday’s data is a step in the right direction, the persistent problem of rising food prices and household energy bills remains a thorn in the side of the British economy, said Richard Carter, head of fixed rate research at Quilter Cheviot.
However, Carter suggested that inflation may finally pass its peak after The US also posted a better-than-expected CPI print in Tuesday.
“Temperatures have dropped sharply over the past week and demand for gas will no doubt increase as people are forced to heat their homes,” Carter added.
“Because the autumn was quite mild, we are only now starting 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 knock-on effects on inflation.”
The Bank of England faces a difficult task in trying to return inflation to its 2% target while remaining mindful of a weakening economy. This was evident in the latest UK labor market data earlier this week, which showed a rise in both unemployment and wage growth.
“While inflation is easing, it remains well ahead of wages and we are heading into another winter of discontent with strikes concentrated in the unionized public sector and, as a result, formerly nationalized industries,” Carter said.
The market is pricing in a 50 basis point rate hike from the bank on Thursday, with the benchmark rate rising to 3.5%. Policymakers have signaled a potential slowdown in the pace of increases in 2023. Still, inflation remains well above target.
“The Chancellor’s Autumn Statement in November helped calm the waters 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 is positive to see that it is finally moving in the right direction.”
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