Summary
- UK inflation, as measured by the Consumer Prices Index, rose to 2.6% on an annual basis in November.
- It marks the second consecutive month where the rate of price increases has gone up. Inflation came in at 2.3% in October, rising from 1.7% the month before.
- "November’s uptick means that inflation is on track to top 3% by the middle of 2025," according to one economist.
- Separately, ONS data published yesterday shows annual UK wages grew 5.2% in the three months to October.
- Grocery prices are also up, according to Kantar data released last week, with prices rising by an annual rate of 2.6%.
- The final Bank of England meeting of the year will take place on Thursday, 19 December. The Monetary Policy Committee (MPC) is expected to hold rates at their current level of 4.75%.
Scroll for live updates and full coverage.
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Good morning. It’s Dan McEvoy from the MoneyWeek team – welcome to our inflation live blog. There are less than 24 hours to go until November’s inflation figures are released. Stay tuned with our blog from myself and the team for all the latest and expert comments.
Temperatures might be cooling but prices are heating up – and most analysts expect an increase in the headline rate in November.
It comes after the rate of inflation increased from 1.7% to 2.3% in last month’s report, driven by higher energy prices.
November inflation predictions
Most experts think that inflation, as measured by the Consumer Prices Index (CPI) is likely to keep trending away from the Bank of England’s 2% target. September’s reading dipped below this for the first time in over three years, but bounced back above in October, and November’s reading is expected to come in higher again.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, expects tomorrow’s CPI reading to come in at 2.6%.
“Higher tobacco duties and energy bills will be taking a toll,” said Streeter last week. “Our desire for travel has been sending airfares soaring, and with grocery price inflation also heading upwards again, policymakers are once again having to deal with a hotter mess of prices.”
Morningstar, meanwhile, cites a consensus among FactSet analysts that CPI will rise to 2.7%, slightly higher than Streeter’s prediction.
Keep a close eye on our blog today and tomorrow, as we bring you more expert predictions and analyses before and after the 7am release.
Interest rate predictions
It’s a big week for economic news, with the Bank of England also meeting to set interest rates. The MPC will announce its latest decision on Thursday.
The Bank is expected to keep interest rates on ice as we head towards Christmas. The MPC wants to see further progress with disinflation in the services sector in particular.
The Autumn Budget at the end of October also spooked markets, with the chancellor announcing £70 billion in spending plans and £40 billion in tax hikes.
There are fears that some of these policies could prove inflationary, such as the increase to the National Living Wage and the hike to employer National Insurance contributions.
Wages on the rise
There has been an early indicator of the long-term direction that inflation may be travelling in today. The ONS released labour market statistics showing wages increased by 5.2% in the three months to October, or 2.2% when adjusted for inflation.
Wage growth is causally linked to inflation. Not only do higher earnings mean greater spending power (and as such, higher prices thanks to increased demand), but they also increase the costs of production for businesses, who might then increase prices in order to cover these costs.
Whether or not higher wages from August to October will have impacted the inflation reading for November is hard to say, but it could indicate higher inflation in future.
As such, it decreases the (already slim) likelihood of an interest cut on Thursday, regardless of tomorrow’s inflation reading.
“Anyone wondering whether we might get another interest rate cut this week can now be fairly confident it’s going to be off the table entirely in December,” says Streeter.
Charles Stanley: wage growth turns attention to inflation
With wages having increased in the three months to October, the question revolves around how these will have impacted the inflation picture.
“All eyes will be on November’s inflation figures which come out tomorrow,” says Rob Morgan, chief investment analyst at Charles Stanley. “It may represent another interesting test case of the extent to which buoyant wages are being absorbed by companies or passed onto consumers via higher prices.
“This could help the BoE ascertain what the effect will be of higher minimum wages and national insurance costs when they take effect in the New Year.”
Morgan also discusses the impact of October’s Budget on inflation.
“Overall, the Budget has been widely interpreted as adding to inflationary risks, piling costs onto companies, especially, in the hospitality sector. This could drive higher prices in the services component of the inflation numbers in particular.”
Market research company Kantar has foreshadowed tomorrow’s announcement with a review of grocery inflation.
Kantar said last week that grocery prices had increased 2.6% year-over-year in the four weeks to 1 December, up from 2.3% in the previous four weeks. This corresponds closely both with October’s inflation reading and the expectations for November’s figure.
Much of this uptick in grocery spending could be seasonal.
“Many of us take the chance to treat ourselves at this time of year and retailers are rolling out seasonal product lines to help us celebrate in style,” says Fraser McKevitt, head of retail and consumer insight at Kantar. “The proportion of spending on premium own label products reached 5% over the latest four weeks and we expect it to climb even higher in December to nearly 7%.”
Thanks for following the blog today. We'll be back in the morning with the latest inflation figures.
Good Wednesday morning, and welcome back to our inflation live blog. This is Katie Williams. There are less than 15 minutes to go until November's CPI data is released. What will inflation look like – and how will it inform the Bank of England's thinking as it heads into the final MPC meeting of the year? Stick with us for the latest news and analysis.
BREAKING: Inflation rises to 2.6%
The rate of UK inflation rose to 2.6% in the 12 months to November, according to the latest data from the Office for National Statistics.
It is the second month in a row where the rate has increased, after inflation rose from 1.7% to 2.3% in October.
What contributed to the change in the annual CPI rate?
The largest upward contributions in November came from transport and recreation and culture, the ONS revealed.
Overall, eight out of 12 divisions saw upward contributions, partially offset by a downward contribution from restaurants and hotels.
This doesn't necessarily mean prices in these categories are going up. Transport costs are actually falling, but just at a slower rate than they were in last month's report.
Transport costs fell by 1.9% in the 12 months to October, but by just 0.9% in the 12 months to November.
What does it mean for interest rates?
“Inflation ticking up isn’t a present that policymakers had on their Christmas wish lists. It means that we will almost certainly see a hold in the last interest rate decision of the year tomorrow, despite signs that the economy has been slowing down,” says Ben Thompson, deputy chief executive at the Mortgage Advice Bureau.
While the latest news could be seen as the final straw, markets were already confident that the MPC would keep rates on hold at tomorrow’s meeting after reacting to inflationary policies announced in the Autumn Budget.
Yesterday’s wage growth figures didn’t help matters either, accelerating to 5.2% (excluding bonuses).
Core inflation up, but services inflation unchanged
Core inflation, which strips out volatile measures like energy, food, alcohol and tobacco, rose from 3.3% to 3.5%.
Services inflation remained stable at 5%, though. This is one of the most important metrics for the Bank of England, as services account for around 80% of the UK economy.
While the Bank will be pleased to see services inflation hasn't risen any higher, Tom Stevenson, investment director at Fidelity International, points out that it remains "well above target".
A headache for Labour?
The latest CPI data could create another headache for the Labour government. Chancellor Rachel Reeves has faced criticism in the wake of the Budget, after several of her policies were deemed inflationary.
What's more, there could be further pain ahead, according to Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.
He says: "November’s uptick means that inflation is on track to top 3% by the middle of 2025, with tax rises in the Budget and elevated energy costs likely to increase the upward pressure on prices in the near term.
“The rise in core inflation will make for slightly difficult reading for policymakers, as it suggests that underlying inflationary pressures in the much of the economy are not yet fully under control.
“This inflation increase 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."
What does the latest inflation data mean for savers?
The latest news might be the nail in the coffin for a December interest rate cut, but that doesn't mean it is good news for savers.
"Higher inflation means savers should review how their money is positioned to protect against its impact on the real value of their savings," says Adam Thrower, head of savings at Shawbrook, the UK bank.
"It’s a hectic time of year, but taking a moment to review your savings could help ensure your money continues to work hard and stay shielded from inflationary pressures in the year ahead," he adds.
Savings rates have been tumbling in recent months, and 5% deals on easy-access accounts have now disappeared entirely. The top rate savers can earn is now 4.85%, according to comparison site Moneyfacts.
Although the Bank of England is unlikely to cut the base rate tomorrow, now could be the time to think about fixing a portion of your savings to lock in higher rates for longer. The top one-year fixed-rate account pays 4.65%, guaranteed for a year. Just remember you won't be able to access the money until the end of this period.
Reasons to be cheerful
As we head into the festive season, some economists point out that there are at least one or two reasons to be cheerful.
"Inflation wasn’t quite as strong as some were expecting," says Sanjay Raja, chief UK economist at Deutsche Bank.
"Indeed, while headline CPI came in at 2.6%, core CPI was a tenth lower than expectations," he adds.
Furthermore, although services inflation remained high at 5%, Raja says this was also a tenth lower than consensus expectations.
Victory over inflation still "some way away"
As we head into 2025, the increase to employer National Insurance contributions could weigh on the inflation outlook.
Raja says employers are likely to "start ramping up prices at the start of the year" to account for the additional cost.
"The MPC will be cognisant of this heading into its final decision of the year. Put bluntly, the MPC is some way away from declaring victory on inflation," he adds.
Reeves responds to inflation reading
Chancellor of the exchequer Rachel Reeves, who has come under fire for including potentially inflationary policies in her Autumn Budget, has issued a response to today’s inflation reading.
"I know families are still struggling with the cost of living and today’s figures are a reminder that for too long the economy has not worked for working people,” said Reeves.
“I am fighting to put more money in the pockets of working people. That’s why at the Budget we protected their payslips with no rise in their national insurance, income tax or VAT, boosted the national living wage by £1,400 and froze fuel duty.
"Since we arrived real wages have grown at their fastest in three years. That’s an extra £20 a week after inflation. But I know there is more to do. I want working people to be better off which is what our Plan for Change will deliver.”
How has the stock market reacted?
The FTSE 100 opened up 0.24% this morning.
This is a little surprising – as Tom Stevenson, investment director at Fidelity International, says, “the lack of domestic growth and persistent inflation makes it harder to spot the catalyst for a re-rating” for UK equities.
That said, the consensus among analysts was that the headline figure would be 2.7%, marginally ahead of the actual result. It appears that investors had priced this in, so the 2.6% figure, while only marginally lower, has prompted a small sigh of relief from investors.
“The UK stock market remains one of the cheapest in the developed world,” says Stevenson.
Hargreaves Lansdown’s Investor Confidence survey shows increasing confidence in British equities.
“Confidence in the UK stock market has risen in December, up 6% on the previous month,” says Emma Wall, head of platform investments at Hargreaves Lansdown. “Despite recent FTSE 100 weakness, the index is up more than 6% year to date, and smaller companies as per the FTSE 250 index have also posted positive returns – up 5%.
What’s driving transport costs?
While not rising in the year to November, a deceleration in transport costs falling is one of the key factors behind the uptick in inflation.
Sarah Coles, head of personal finance at Hargreaves Lansdown, explains how global oil prices have applied upward pressure to transport costs:
“Transport helped drive inflation up, because petrol prices were higher. The oil price fluctuated throughout the month, partly on the back of geopolitical tensions, but also as a result of the market digesting the likely impact of a Trump presidency on supply and demand.
“During the month, the average price of petrol rose by 0.8 pence per litre and the average diesel price was up 1.4 pence per litre. It’s still far lower than a year earlier, with petrol down 10.7% and diesel down 11.6%. However, the annual drop is smaller than before, which is why it helped push inflation up.”
What does higher inflation mean for your mortgage?
The most direct impact on mortgages will come tomorrow, when the Bank of England announces its next interest rate decision. As a reminder, given the uptick in inflation as well as the unexpected increase in wages, it is highly unlikely that it will cut rates; most experts expect rates to be held at their current level of 4.75%.
However, the inflation reading could indirectly affect fixed-rate mortgages even with the base rate unchanged, though it is unlikely this effect will be significant.
“Mortgage rates have struggled to settle in recent weeks, with each piece of economic news – and each utterance from the Bank of England – sending rates slightly up or down within a fairly narrow range,” says Coles. “Higher inflation is likely to mean another small fluctuation upwards in fixed rates, but given that rate expectations should remain largely unchanged, there’s every chance it’s nothing to write home about. We could see average two-year fixed rates remain about the 5.5% point.”
What's going on with house prices?
UK house price inflation came in at 3.4% in the 12 months to October, according to separate official figures released today.
House prices are now within touching distance of the record high achieved in August this year, having spent much of the past two years in recovery mode.
Some of the change could be being driven by impending tax changes, though, with buyers rushing to buy before stamp duty thresholds fall in April 2025. This could add thousands to the cost of moving house.
Inflation: the longer-term outlook
Today’s data reflects what has happened to CPI over the past 12 months. The bigger question, though, is what’s likely to happen going forward.
This is of course hard to predict with certainty, but as Rachel Winter, Partner at Killik & Co says, “there are a few factors that could be inflationary; the new tax hikes on businesses and potential trade tariffs from the US could pose a threat to the Bank of England’s 2% inflation target”.
The second Donald Trump administration in particular could cause an inflationary headache for British policymakers. “There are inflationary concerns surrounding what Donald Trump’s reprise as US President might mean for global supply chains,” says Rob Morgan, chief investment analyst at Charles Stanley. “Should he look to expand his tariff approach there could be a significant impact on the costs of global trade.”
Why the inflation “rebound” might be misleading
It’s tempting to view the jump in CPI readings between October and November as a reflection that prices have increased significantly during the month, but this isn’t the case.
October’s figure means that prices rose 2.3% in the 12 months to October 2024, while the latest reading shows they rose 2.6% in the 12 months to November.
Month-over-month, however, prices rose just 0.1%. This actually implies a slowing in inflation from the previous month (0.6%).
George Lagarias, chief economist at Forvis Mazars, explains: “The 2.6% year-on-year inflation figure, which suggests a rebound, may be slightly misleading. For November, prices were up just 0.1.%, a sixth of the rise we saw in October.”
As a result, Lagarias doesn’t view this latest figure as particularly significant, and says the Bank of England "should not worry" about it.
Join us for interest rates tomorrow
That concludes our inflation coverage for today. Thank you for joining us on MoneyWeek's live blog. We will be back tomorrow, reporting live as the Bank of England announces its latest interest rate decision. Hop over to our interest rates live blog for preview analysis from today.