British Inflation Hits Eight-Month High

By William Schomberg and David Milliken

LONDON (Reuters) – British inflation reached an eight-month high in November, driven by stable services prices, providing some relief to the Bank of England (BoE).

Following strong wage growth data, investors increased their bets on interest rate cuts by the BoE for next year, while the pound weakened. Official data showed consumer prices rose by an annual 2.6% in November, the highest rate since March, up from 2.3% in October.

This increase means inflation is rising further away from September’s 1.7%, marking the first time inflation fell below the BoE’s 2% target in almost three-and-a-half years, after peaking above 11%.

Martin Sartorius, principal economist at the Confederation of British Industry, noted, “Another consecutive monthly rise in inflation underscores persistent price pressures in the UK economy.” The overall rise in prices aligned with economists’ expectations in a Reuters poll.

Services inflation, a key indicator for the BoE, remained at 5.0% in November, unchanged from October. Economists had expected a slight rise to 5.1%, while the BoE anticipated a dip to 4.9%.

In contrast to other countries, Britain’s headline inflation in November was greater than in France, Germany, or the United States. Persistent wage growth and higher employer tax rates imposed by the new government are predicted to contribute to rising prices.

Some economists foresee that headline consumer price inflation could reach 3% by 2025. The BoE had projected the inflation rate for November at 2.4% six weeks prior.

Services Inflation Outlook

Economist James Smith from ING suggested that services inflation may stabilize around 5% for the next few months but is expected to decrease as annual inflation-linked adjustments to telecommunications services come into effect.

The headline inflation increase was broad-based, particularly noted in transport, specifically petrol and car purchase costs, slightly offset by modest rises in airfares and dining costs.

The BoE has indicated that it will proceed cautiously with rate cuts, noting signs of a slowing economy. The Office for National Statistics (ONS) reported that core inflation, excluding energy and food, rose to 3.5% in November from 3.3% in October. Manufacturer prices showed a monthly increase of 0.3%, the largest rise since April, reflecting inflation pressure observed in recent business surveys.