UK inflation falls from 41-year high as fuel price surge eases

LONDON – UK inflation was slightly below expectations at 10.7% in November as cooling fuel prices helped ease price pressures, although high food and oil prices energy have continued to weigh on households and businesses.

Economists polled by Reuters had forecast an annual rise in the consumer price index of 10.9% in November, after October saw an unexpected rise climb to a 41-year high of 11.1%. On a monthly basis, November’s increase was 0.4%, down from 2% in October and below a consensus estimate of 0.6%.

The Office for National Statistics said the biggest upside contributions came from “housing and household services (mainly electricity, gas and other fuels), as well as non-food and drink”. alcoholic”.

The largest downward contributions during the month came from “transportation, particularly fuels, with rising prices in restaurants, cafes and pubs providing the largest upside contribution, partially offsetting.”

The bank of england will announce its next monetary policy decision on Thursday. He is widely expected to raise interest rates by 50 basis points as he juggles soaring inflation and an economy that policymakers say is already in its longest recession on record.

The the country faces widespread industrial action over the Christmas period, as workers go on strike to demand wages rise closer to the rate of inflation and better working conditions.

The Independent Office for Budget Responsibility has predicted the UK will suffer its biggest drop in living standards since records began, as real household income is set to fall by 4.3% in 2022-23.

Jeremy Hunt, UK Finance Minister last month announced a sweeping £55billion ($68billion) budget plan, including a series of tax hikes and spending cuts, in a bid to plug a substantial hole in the country’s public finances .

A positive step, but risks remain

While Wednesday’s drop in figures is a step in the right direction, the lingering problem of rising food prices and household energy bills remains a thorn in the side of the UK economy, noted Richard Carter, Head of Fixed Rate Research at Quilter Cheviot.

However, Carter hinted that inflation might finally peak, after the The United States also released a better than expected CPI tuesday.

“Temperatures have dropped sharply over the past week, and demand for gas will no doubt have increased as people are forced to heat their homes,” Carter added.

“As the autumn had been rather mild, we will only now begin to see the real impact of rising energy bills. While government support remains in place for now, any changes made once the deadline for reaching April could have a ripple effect on inflation.”

The Bank of England faces a delicate task in trying to bring inflation back towards its 2% target while remaining cognizant of the weakening economy. This was evident in the latest UK labor market data earlier this week, which showed a slight increase in unemployment and wage growth.

“While inflation is falling, it remains well ahead of wages, and we are heading into another winter of discontent with strikes concentrated in the unionized public sector and old industries nationalized as a result,” Carter said.

The market expects the Bank to raise interest rates by 50 basis points on Thursday, bringing the benchmark rate to 3.5%. Policymakers have signaled a potential slowdown in the pace of increases in 2023. However, inflation remains well above target.

“The Chancellor’s Autumn statement in November helped calm tempers after months of significant turbulence, but inflation remains well above the Bank’s 2% target, meaning there is still a long way to go,” Carter said.

“A rapid fall in inflation is highly unlikely, but it is positive to see it finally moving in the right direction.”

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