LONDON — U.K. inflation increased to 2.6% in November, as reported by the Office for National Statistics on Wednesday, marking the second consecutive monthly rise in the headline figure. This figure matched the forecast of economists surveyed by Reuters and was up from 2.3% in October.
Core inflation, which excludes energy, food, alcohol, and tobacco, stood at 3.5%, slightly below the Reuters forecast of 3.6%.
The headline price increase had dropped to a three-and-a-half year low of 1.7% in September but was expected to rise in the coming months, partly due to an increase in the regulator-set energy price cap for the winter.
Joe Nellis, an economic adviser at accountancy MHA, mentioned in emailed comments on Wednesday that this upward trend is likely to persist in the next few months, pointing to the energy market and the ongoing pressure from a tight domestic labor market.
Nellis also noted that these structural challenges would be compounded by recent government decisions, such as higher public sector pay settlements, a minimum wage increase, and increased tax contributions for employers.
Persistent inflation in the services sector, a key part of the U.K. economy, has led money markets to anticipate almost no chance of an interest rate cut during the Bank of England’s final meeting of the year on Thursday. This sentiment was reinforced earlier in the week when the ONS reported a strengthening of regular wage growth to 5.2% for the August-October period, up from 4.9% in July-September.
The November data indicated that services inflation remained steady at 5%.
Research group Capital Economics stated that the data “firmly rules out” a BOE rate cut in December.
However, the overall inflation figures were broadly in line with BOE forecasts, according to George Dibb, associate director for economic policy at the Institute For Public Policy Research (IPPR), who communicated via email.
Dibb expressed concern over the U.K.’s weaker-than-expected growth, which is falling behind the Bank’s projections. The U.K. economy unexpectedly shrank by 0.1% in October, marking the second consecutive monthly decline.
Following the release of the data, the British pound continued to trade 0.06% lower against the U.S. dollar and 0.19% lower against the euro.
If the BOE maintains its monetary policy in December, it will conclude the year with two cuts to its key rate, reducing it from 5.25% to 4.75%. In contrast, the European Central Bank has implemented four quarter-percentage-point cuts and signaled intentions to lower rates further next year.
The U.S. Federal Reserve is widely expected to reduce rates by a quarter point at its meeting on Wednesday, bringing total cuts for the year to a full percentage point. Some doubts remain about the necessity of this step given inflationary pressures.
