U.K. Inflation Hits 5% Fastest in a Decade

Inflation in the UK rose to its highest point in over a decade in November. It was higher than 5% months earlier than what the Bank of England expected.

According to data, consumer prices rose 5.1% compared to a year ago due to an increase in clothing, fuel, and second-hand vehicles. Core inflation, which excludes energy and volatile items, rose to 4%, its highest level since 1992.

Inflation overall rose from 4.2% in October to 5.2% today. In just four months, it has risen by 3.1% the fastest increase on record.

The figures and data that point to a strengthening labour force may have been sufficient to allow the BOE to increase interest rates on Thursday without the threat posed by the omicron variant. Investors and economists anticipate that the Monetary Policy Committee will delay raising interest rates until February due to new restrictions by the government.

The Key to Price Growth

Inflation in the United Kingdom was most affected by clothing and transport in November

The money markets increased their bets on the rate of BOE tightening following the data. Today’s rate hike is expected to be 8 basis points, as traders are betting against the 5 basis points that were forecasted on Tuesday. The key rate will rise to 1% in September from 1% in November, according to traders.

After the data, the pound gained 0.2% to $1.3249 at 11.34 in London. The yield on 10-year securities fell 3.1 basis points to 0.752% after the government bonds dropped.

Samuel Tombs, Pantheon Macroeconomics’ chief U.K economist, said that the reading will be “uncomfortably large for the MPC, however, omicron necessitates more patience.”

However, the BOE’s prediction that the measure would reach its peak in the second quarter next year was not true. Officials only predicted that the leap above 5% would occur sooner than expected.

Others predict even greater gains for 2022. The International Monetary Fund warned the BOE about “inaction bias” during its weekly economic stock-take in the U.K.

The concern for policymakers is that inflation could rise to 2% and wages will be affected. Data Tuesday revealed that annual pay gains, excluding bonuses, rose 4.3% in the three months to October.

“It is alarming that inflation is exceeding wages. If this disparity continues as we predict it will, real household incomes may be squeezed further, dampening consumer spending and weakening overall economic activity,” stated Suren Thiru from the British Chambers of Commerce.

The Office for National Statistics also reported:

  • Retail price inflation, which determines interest payments for index-linked bonds or student loan repayments and is used to calculate them, rose to 7.1% in November. This was the fastest rate since early 1991.
  • In November, footwear and clothing prices increased 1.1% This contrasts with November last year, when prices for clothing and footwear fell 2.7% due to the second lockdown in England.
  • The prices of petrol and diesel rose 5.1% and second-hand cars increased 3.1%. According to the ONS, there was a decrease in used cars available for sale. The shortage of new cars due to a lack in semiconductor chips continues to fuel demand.
  • In response to a 14.3% increase in fuel prices and raw materials, factories raised their prices by 9.1% from November to November. These increases were the fastest since 2008.


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