"We’re quite close to talk of a rate cut being killed off completely as these figures are not conducive to looser monetary policy, despite the economy stalling."
- Derrick Dunne, CEO of YOU Asset Management
UK inflation has increased from 2.3% in October to 2.6% in November, the latest ONS statistics show.
Core CPI inflation (excluding energy, food, alcohol and tobacco) has also increased to 3.5%, from 3.3% in October.
On a monthly basis, CPI rose by 0.1% in November, compared with a fall of 0.2% in November 2023.
Rising inflation, alongside this week's higher-than-expected wage growth data, mean economists now widely predict that the Bank of England's Monetary Policy Committee will vote to hold interest rates in tomorrow's announcement.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented: “Inflation looks likely to have bubbled up again in November, dashing hopes that more heat will be taken out of borrowing costs.
"However, some of these effects had already been forecast by the Bank of England, and so they may not move the dial too much in terms of interest rate expectations. The Bank has already said it’s less concerned about inflation driven by external factors, and more focused on whether it feeds into more domestically-powered inflation – through higher wages.
"There’s a lot of 'what ifs’ around right now, so it won’t be at all surprising if the Bank sits on its hands next week and adopts a ‘wait and see’ approach. This is reflected in financial markets' expectations, with an 88% probability of no change to the base rate next week being factored in.”
Peter Stimson, head of product at MPowered Mortgages, said: "The Bank of England’s approach to interest rates will need to be far more hawkish than many had hoped.
“The next reduction in the Bank’s base rate - which the markets had expected to be in early 2025 - may now come later.
“This will be a worry for anyone planning to buy their first home or remortgage in the New Year. While mortgage lenders will try to trim their interest rates in January in an effort to win borrowers’ business, their ability to do so will now be severely constrained.
“The Bank of England’s battle against inflation is back on and the prospect of cheaper mortgages is off the table for now.”
Derrick Dunne, CEO of YOU Asset Management, added: “The most concerning aspect of this morning’s inflation figures is the sizeable rise in core inflation, which has ticked back up to 3.5%. Although the market has expected the overall size of this increase in price rises, core inflation is looking more stubborn than ever.
“These numbers are higher than forecast by the Bank of England recently, which will leave rate setters shifting nervously. Tomorrow we’ll receive the MPC’s view on this but with wages still growing strongly, we’re quite close to talk of a rate cut being killed off completely as these figures are not conducive to looser monetary policy, despite the economy stalling."
However, George Lagarias, chief economist at Forvis Mazars, was more upbeat, stating: “The 2.6% year-on-year inflation figure which suggests a rebound, may be slightly misleading. For November prices were up just 0.1%, a sixth of the rise we saw in October. The Bank of England should not worry about this month's inflation number. Instead, it should look forward into 2025, to trade wars, the Chinese economy and US pro-cyclical policy to gauge how inflation might develop in the new year and adjust monetary policy accordingly.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau, agreed: “Inflation ticking up isn’t a present that policymakers had on their Christmas wish lists. It means that we will almost certainly see a hold in the last interest rate decision of the year tomorrow, despite signs that the economy has been slowing down. But this shouldn’t dampen any festive joy. It’s been a positive year for buyers, and that outlook continues into 2025. Prospective buyers can rest easy this Christmas ahead of what will be a good homebuying year.”
