UK inflation accelerated to 2.6 per cent in November, highlighting the Bank of England’s challenge as it grapples with persistent price pressures and a stagnating economy.
The rise in the consumer price index was above the 2.3 per cent recorded in October but in line with expectations. Higher prices for motor fuels and clothing helped push inflation higher, according to figures from the Office for National Statistics on Wednesday.
The increase comes ahead of a meeting of the BoE’s Monetary Policy Committee on Thursday at which it is widely expected to hold interest rates at 4.75 per cent, after reducing borrowing costs twice this year.
GDP has shrunk for two consecutive months, while business surveys point to weaker confidence and curtailed hiring intentions following Rachel Reeves’ tax-raising Budget in October. But the rise in inflation and a pickup in UK wage growth has quashed hopes of an interest-rate cut at the BoE’s final meeting of the year.
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November’s CPI figure “extinguishes any lingering hopes of an interest-rate cut on Thursday, while concerns over mounting inflation risks, including the recent spike in pay growth, mean that a February loosening is not a done deal,” said Suren Thiru, economics director at accountants’ body the ICAEW.
Following the release of the data, sterling edged down 0.1 per cent to $1.269. Investors have all but ruled out the prospect of an interest-rate cut on Thursday, according to levels implied by swaps markets, and expect just two reductions next year.
Core inflation, which excludes energy, food, alcohol and tobacco, was 3.5 per cent in November, the ONS data showed, above the 3.3 per cent recorded in October.
Services inflation, closely watched by the central bank as a gauge of underlying domestic price pressures, was 5 per cent in November, matching October’s figure but below analysts’ expectations of 5.1 per cent.
Governor Andrew Bailey has said the BoE will continue to ease policy gradually but officials have pointed to the persistence of services inflation as a reason for caution. – Copyright The Financial Times
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