Official figures released on Wednesday revealed that inflation in the U.K. surged to its highest level in eight months during November. The Office for National Statistics reported that consumer price inflation increased to 2.6% in the year to November, up from 2.3% in the previous month. The rise was primarily driven by stubbornly high inflation in the services sector, which constitutes around 80% of the U.K. economy, and a spike in fuel prices.
This uptick in inflation, exceeding the Bank of England's 2% target, aligns with market expectations. Economists now anticipate that the Bank of England will refrain from reducing its main interest rate of 4.75% following its policy meeting on Thursday.
The latest data underscores the challenge of curbing inflation in the U.K. economy, according to experts. Despite a previous rate cut in early November, inflation had dipped to its lowest level since April 2021 in September. However, the recent increase in inflation has quashed hopes of further rate cuts in the near term.
While inflation rates have moderated from previous highs, central banks globally have begun to lower interest rates. Nevertheless, analysts do not foresee rates reverting to the ultra-low levels seen post the 2008-2009 financial crisis.
Recent economic developments have tempered expectations of swift rate reductions by the Bank of England. Rising wages and persistent inflation in the services sector have led economists to revise down projections for rapid rate cuts in the coming year.
Critics have raised concerns that the new Labour government's budget in October could fuel higher inflation. The increased public spending outlined in the budget, financed through elevated business taxes and borrowing, may exert upward pressure on prices. Economists fear that businesses could pass on the tax burden to consumers through price hikes, further contributing to inflationary pressures.
