UK inflation recently fell from a 41-year high as fuel prices cooled, but high food and energy prices continue to weigh on consumers.
U.K. inflation came in at 10.7% last month, slightly below the 10.9% CPI projection of surveyed analysts. In October, inflation in the country hit a record high of 11.1%, but the latest figure for November represents a drop of 0.4%.
Let’s take a closer look at the latest UK inflation data
According to the Office for National Statistics, the “housing and household services” were the main drivers of increases. This category includes fuels such as gas and electricity, as well as food and non-alcoholic beverages. In contrast, the category “transportation“, particularly fuels, was the largest contributor to the decline during the month. On the other hand, rising costs in cafes, pubs and restaurants accounted for the “largest upward contribution, partially offset.“
The decline in the latest inflation data is a welcome relief. However, the persistent rise in food prices and consumer energy bills continues to pose a problem for the UK government. Quilter Cheviot’s head of fixed interest rate research, Richard Carter, noted that this price imbalance is more concerning now, given the winter season. He noted:
“Temperatures have dropped sharply in the last week or so, and demand for gas will likely have increased as people are forced to heat their homes.”
In addition, Richard Carter stated:
“Because it had been a fairly mild fall, we will only now begin to see the real impact of higher energy bills. If government assistance remains in place for now, any changes made once the April deadline is reached could have a ripple effect on inflation.”
Bank of England ponders next tax measure amid widespread union discontent
The UK is currently facing widespread industrial action over the Christmas period, and the Bank of England looks set to announce its next tax measure on Thursday. With workers agitating for wage increases closer to the rate of inflation and better working conditions, the BoE will likely raise interest rates by 50 basis points. However, Richard Carter pointed out that while inflation is falling, it is still far outpacing wages. He also suggested that the current discontent among workers could have unfortunate consequences as the bitter cold of winter approaches.
The central bank is already on the ropes with runaway inflation and an economy wallowing in the longest recession on record. The Bank of England is trying to bring inflation back to its 2% target while keeping an eye on a severely weakened economy. During this painful period, the Office for Budget Responsibility has predicted that the U.K. will see its standard of living plummet even further to a record low. According to the independent budget watchdog, real household income could fall by 4.3 per cent in 2022/23.
Finance Minister Jeremy Hunt announced in November an airtight budget plan to adequately address the UK’s substantial public finance deficit. The £55 billion (68 billion euro) program included several tax increases and spending cuts.
In the U.S., inflation is also falling, as evidenced by the latest CPI report. In any event, the Federal Reserve looks set to raise rates by 50 basis points today.