LONDON – Inflation in the U.K. rose to its highest level in eight months during November, official figures showed Wednesday, a development that has cemented market expectations that the Bank of England will opt against cutting borrowing costs this week.
The Office for National Statistics said consumer price inflation rose by 2.6% in the year to November, up from 2.3% the previous month. It said stubbornly high inflation in the crucial services sector, which accounts for around 80% of the U.K. economy, and an increase in fuel prices was largely behind the overall increase.
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The increase, which took inflation further away from the Bank of England's target of 2%, was in line with market expectations.
This is the biggest increase since March, leading economists to rule out any prospect that the Bank of England will cut its main interest rate from 4.75% after its policy meeting on Thursday.
James Smith, research director at the Resolution Foundation economics think tank, said that the “latest data shows the challenge Britain faces in squeezing inflation out of the economy.”
Rate-setters had anticipated a pickup in inflation when the central bank last cut rates in early November as price pressures eased earlier in the year — in September, inflation had fallen to its lowest level since April 2021.
Still, inflation in the U.K. and across the world is far lower than it was a couple of years ago, partly because central banks dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues and then because of Russia’s full-scale invasion of Ukraine which pushed up energy costs.
As inflation rates have fallen from multidecade highs, the central banks have started cutting interest rates, though few, if any, economists think that rates will fall back to the super-low levels that persisted in the years after the global financial crisis of 2008-2009.
Recent developments have scaled back expectations of rapid cuts from the Bank of England. Rising wages and stubbornly high inflation in the services sector, the biggest single part of the U.K. economy, have prompted economists to scale back expectations of rapid rate cuts next year.
Critics have argued that the new Labour government's first budget in October will lead to higher inflation than otherwise would have been case. The extra public spending announced in the budget will be largely funded through increased business taxes and borrowing. Economists think that the splurge, coupled with the prospect of businesses cushioning the tax hikes by raising prices, could put upward pressure on prices.