UK Inflation Update

UK inflation rose for the second consecutive month, solidifying expectations for the Bank of England to keep interest rates stable at its upcoming meeting.

Key Points:

• Annual Consumer Price Index (CPI):

  • Climbed to 2.6% in November, up from 2.3%.
  • Surpassed the Bank of England’s 2.9% medium-term target.

• Monthly Rate:

  • Increased by 0.1%, lower than October's 0.6%.

• Analyst Expectations:

  • Consensus predicted a 2.6% annual increase and a 0.1% monthly rise.

• Core CPI:

  • Remained flat monthly.
  • Annual rate increased to 3.5%, below the anticipated 3.6% (from 3.3% the previous month).

• Historic Context:

  • Notably, the annual headline inflation dipped to 1.7% in September, its lowest since April 2021, but has since rebounded above 2.0%, remaining significantly lower than the 11% peak two years ago due to the Ukraine conflict.

Additional Insights:

Data showed that British wages rose more than anticipated in the three months to October, contributing to heightened concerns regarding inflation, leading the Bank of England to adopt a cautious approach towards interest rate cuts next year, especially following the recent budget on October 30, which increased employer taxes and raised potential for higher prices and wages.

The Bank of England’s Monetary Policy Committee will convene on Thursday, where a pause in the rate-cutting cycle is expected.

Market Expectations:

Money markets suggest expectations of a 70 basis point rate cut next year from the BoE, compared to similar cuts expected from the Fed and around 120 basis points from the European Central Bank.