"A 0.5% hike to 3.5% is widely anticipated as inflation remains uncomfortably high and economists expect inflation to average around 7% in 2023."
CPI inflation rose by 10.7% in the 12 months to November, down from 11.1% in October, according to the latest figures from the ONS.
On a monthly basis, CPI rose by 0.4% in November, compared with a rise of 0.7% in November 2021.
The largest downward contribution to the change in annual inflation rates came from falling fuel prices, while rising electricity, gas and food prices helped keep inflation high.
Despite the fall, financial experts still predict the Bank of England's Monetary Policy Committee to increase Bank Rate by 0.5% in tomorrow's meeting.
Dan Boardman-Weston, CEO at BRI Wealth Management, said: “The rate of inflation continues to run at multi-decade highs, with the cost of gas and electricity and food causing issues for households. The Bank of England remains in a really tricky spot, as they need to raise rates given that inflation is far in excess of their 2% target, but the economy is in a parlous state. The Bank of England is likely to raise interest rates by 0.50% tomorrow in order to keep the rate of inflation falling in to 2023. The Government and Bank of England have a difficult balancing act ahead of them and we hope they’re successful in reducing inflation without causing too much economic pain. This looks like a big ask though.”
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: “UK inflation eased slightly in November, dipping to 10.7%. The latest data marks a fall of 0.4%, which is far more palatable than the huge 1% increase seen between September and October of this year. While the slight dip is a step in the right direction, the issue of rising food prices and growing household energy bills remains firmly in place. However, considering the US also saw better than expected inflation data yesterday, it is encouraging that we may finally be passing the peak of inflation.
“Temperatures have taken a sharp dive in the last week or so, and the demand for gas will no doubt have increased as people are forced to heat their homes. As the autumn had been rather mild, we will only now begin to see the real impact of higher energy bills. While the government support remains in place for now, any changes made once the April deadline is reached could have a knock-on effect on inflation.
“The Bank of England is set to make its next interest rate decision tomorrow, and a 0.5% hike to 3.5% is widely anticipated as inflation remains uncomfortably high and economists expect inflation to average around 7% in 2023.
“Given the latest UK labour market data showed an uptick in both unemployment and wage growth, the Bank faces a tricky dilemma in combatting inflation while also being mindful of a weakening economy. While inflation is falling, it remains well ahead of wages, and we are heading into a new winter of discontent with strikes concentrated in the unionised public sector and former nationalised industries as a result. A hike is still expected this time around, but as we move into next year the pace of Bank of England rate hikes is likely to slow.
“The Chancellor’s Autumn Statement in November helped to settle the waters following months of significant turbulence, but inflation remains far above the Bank’s 2% target which means there is still a long way to go yet. A rapid fall in inflation is highly unlikely, but it is positive to see it finally moving in the right direction.”
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, added: “After what feels like an eternity of worrisome fiscal news, there is some Christmas cheer to be found in today’s figures which show that UK inflation may have finally peaked. However, at 10.7%, this is still well above the Bank of England’s 2% inflation target, so this is just the end of the beginning for the Monetary Policy Committee.
“In October the price cap increase drove a 42.7% uptick in utility prices, but the now-fixed price cap has thrown water on the flames of burning energy price inflation. Food inflation is also moderating, while sterling’s rebound on the foreign exchanges should ensure that other imported inflationary pressures diminish too.
“The UK still faces strongly embedded domestic drivers of inflation however, meaning the glass is still half empty in the medium term. Many businesses are meeting pay demands and raising prices to pay for it. Yesterday’s labour market figures showed private sector pay growth sitting at 6.9% for August to October, an increase of 0.3% and higher than the Bank of England would hope.
“The Bank will likely respond as per its mandate to manage inflation by further raising its base rate and keeping it elevated for most of 2023. There is still a long and painful road to financial recovery ahead, winding through a stagnating economy and a lengthened recession. But this is a necessary path if the UK wishes to get out of the woods and deal with its stubborn inflation.”
