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

LONDON – UK inflation came in slower than expected at 10.7% in November, as cooling fuel prices helped ease price pressures, although high food and energy prices continued to squeeze households and businesses.

Economists polled by Reuters had projected an annual increase in inflation of 10.9% in November, after October saw an unprecedented 41-year increase of 11.1%. On a monthly basis, the increase in November was 0.4%, down from 2% in October and below the figure of 0.6%.

The Office for National Statistics said the biggest contributions to the rise came from “domestic and household services (mainly from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

The biggest contributors to the decline in the month came from “transportation, particularly fuel, rising prices in restaurants, cafes and pubs resulting in higher costs, less reductions.”

The Bank of England will announce its monetary policy on Thursday. Most are expected to raise interest rates by 50 basis points, as it reverses rising inflation and an economy that policymakers say is already in deep recession.

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The country faces many problems during the Christmas period as workers go on strike to demand an increase in wages in line with inflation and performance.

The independent Office for Budget Responsibility has reported that the UK will face its biggest living loss on record, as real household income is expected to fall by 4.3% in 2022-2023.

UK Chancellor of the Exchequer Jeremy Hunt last month announced a £55 billion ($68 billion) economic plan, including tax hikes and spending cuts, in an attempt to close a huge hole in the country’s economy.

A good option, but risks still exist

While Wednesday’s lower figures are a step in the right direction, the persistent problem of rising food prices and household energy costs remains a thorn in the British economy, said Richard Carter, head of sustainability research at Quilter Cheviot.

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However, Carter suggested that inflation may be past its peak, after the US also posted a better-than-expected CPI print on Tuesday.

“Temperatures have dropped significantly in the last week or so, and demand for natural gas has undoubtedly increased as people are forced to heat their homes,” Carter added.

“As the autumn was mild, we are just beginning to see the effect of energy costs on energy. Although the government support is still available, any changes that occur on the last day of April may end up having an impact on inflation.”

The Bank of England faces a difficult task in trying to get inflation back to its target of 2% while dealing with a weakening economy. This was reflected in the latest UK stock market data earlier this week, which showed a rise in unemployment and wage growth.

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“Although inflation is slowing, it is still ahead of wages, and we are entering a new winter of discontent with strikes in unions and formerly nationalized industries,” Carter said.

The market is bracing for a 50% hike in interest rates from the Bank on Thursday, taking the benchmark to 3.5%. Policymakers have indicated a sharp slowdown in inflation in 2023. However, inflation remains above target.

“The Chancellor’s Autumn Statement in November helped clear the water after months of turmoil, but inflation remains above the Bank’s target of 2%, which means there is still a long way to go,” Carter said.

“A rapid fall in inflation is highly unlikely, but it’s good to see that it’s finally going well.”

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