UK inflation hits eight-month high at 2.6% ahead of BOE meet

UK inflation rose to an eight-month high in November, increasing to 2.6% from 2.3% in October, driven by higher petrol prices, grocery costs, and an increase in tobacco duty.

Core CPI, which excludes volatile energy and food prices, showed a flat monthly change, pushing the annual rate up to 3.5% from 3.3% in October, slightly below the expected 3.6%.

This marked a rebound from September's 1.7% CPI, the lowest since April 2021, though still well below the 11% peak seen in 2022 following the Ukraine war.

The data from the Office for National Statistics (ONS) met economists' forecasts and highlighted specific drivers of the rise in inflation.

This uptick pushed inflation further above the Bank of England’s (BOE) 2% target for the second consecutive month, reinforcing expectations that the central bank will hold interest rates steady at its final meeting of the year.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) increased by 3.5% in the 12 months to November 2024, up from 3.2% in October.

The ONS noted that prices for motor fuel and clothing increased, while airfares, which traditionally drop in November, experienced their largest decline since records began.

Services inflation remained high at 5%, above the BOE's expected 4.9%.

The report also showed that while inflation pressures persisted, the pound remained little changed at around $1.27.

Economists had expected the CPI to rise to 2.6%, and while fears of a sharper jump had been present, the fall in airfares helped to moderate the overall inflation figure.

BOE decision on Thursday

The increase in inflation has added to concerns of "stagflation"—a scenario of high inflation coupled with low growth.

The data on wages released on Tuesday also pointed to higher-than-expected pay growth in the three months to October, raising concerns over underlying inflation pressures.

This, in combination with the recent budget that introduced tax hikes on employers, is likely to keep inflationary pressures elevated, particularly impacting wages and prices.

As a result, expectations remain that the Bank of England (BOE) will take a cautious approach to interest rate cuts at its upcoming Monetary Policy Committee meeting on Thursday.

The BOE is expected to keep borrowing costs at 4.75% on Thursday and ease gradually next year, with domestic and global inflation risks still looming.