Inflation rises to 2.6%: Experts respond

The UK inflation rate has gone up for the second month in a row, rising at the fastest rate since March

The UK inflation rate rose to 2.6% in the year to November, according to official figures.

Fuel and clothing were among the main drivers behind the rise. Increasing ticket prices for gigs and plays were also a factor.

The Bank of England raises interest rates to try to keep inflation at its target of 2%. Its next rates decision is on Thursday, but economists expect rates to be held at 4.75%.

“Inflation rose again this month as prices of motor fuel and clothing increased this year but fell a year ago,” said Grant Fitzner, chief economist at the Office for National Statistics (ONS), which gathered the data.

“This was partially offset by air fares, which traditionally dip at this time of year, but saw their largest drop in November since records began at the start of the century.”

Chancellor Rachel Reeves said she recognised that families were still struggling with the cost of living.

“Today’s figures are a reminder that for too long the economy has not worked for working people.”

“I am fighting to put more money in the pockets of working people.”

UK prices rise again

Adam Vettese, market analyst at investment platform eToro, says: “UK inflation has risen for the second month in a row and will have quite firmly put to bed any long-shot hopes for a rate cut at tomorrow’s Bank of England meeting. The month-on-month number slowed from 0.6% to 0.1%, but the year-on-year number ticked up to 2.6% as expected. Kantar’s grocery data last week said prices had increased by the same multiple.

“This data will now put the onus on the Bank of England to signal any alteration to their rate cut trajectory next year. Bets could likely slip on the number of cuts we see if prices don’t come under control below the 2% target.

“Cable had traded within a reasonably tight range leading up to this data as well as the FOMC minutes later this evening. No real surprises herel as anticipation of a rate cut in the US later on has capped any potential Sterling weakness.”

“A bit like coal in a Christmas stocking, creeping inflation is not what anybody wants heading into 2025” – Killik & Co

 
Rachel Winter, Partner at Killik & Co, said: “A bit like coal in a Christmas stocking, creeping inflation is not what anybody wants heading into 2025. The question now on investors’ lips is how much it might rise in 2025. There are a few factors that could be inflationary; the new tax hikes on businesses and potential trade tariffs from the US could pose a threat to the Bank of England’s 2% inflation target.

“Inflation isn’t necessarily bad for equities, but low growth isn’t doing UK companies any favours either. Sadly it’s not surprising that more and more people are choosing to invest their hard-earned savings outside of the UK. Reviewing asset allocation and ensuring investments are diversified will put individuals in a good position to take advantage of any opportunities that arise.”
 
Lily Megson, Policy Director at My Pension Expert said, “This second consecutive rise in inflation will hardly fuel festive cheer. For many, it will set the scene for yet more uncertainty as we head into the new year.

“It has undoubtedly been a challenging transition into power for the Labour government, with its economic strategy coming under fire. While there were high hopes for renewed focus and fresh solutions, Rachel Reeve’s decision to delay the second phase of the pensions review, paired with today’s worrisome inflation news, risks stalling any forward momentum on tackling the UK’s pensions crisis.

“Now, the government must take meaningful action to prioritise Britons’ long-term financial security. Not only does this mean taking decisive action to deliver economic stability but also equipping savers with the tools and resources they need to feel assured that their futures are on solid ground. Rising living costs cannot be allowed to yet again derail people’s aspirations for a secure and comfortable retirement.”
 
Scott Douglas, Director of Capital Markets at international corporate finance firm Centrus, commented:
 
“A raft of inflationary pressures being unleashed has stifled Labour’s grip on the 2% target.

Rising wage growth and food prices has kept inflation on an upward trajectory. The likelihood of the Bank of England remaining cautious with interest rates also means the Government is going to face an uphill battle to get inflation back under control as we head into 2025.

“Rising geopolitical tensions and recent events in the Middle East could also cause spikes in commodity and energy prices. Businesses will have to factor in heightened risk, and having a considered hedging strategy in place will be key to dealing with any potential market shocks.”
 

“Inflation ticking up isn’t a present that policymakers had on their Christmas wish lists.”

 
Ben Thompson, Deputy CEO at Mortgage Advice Bureau, said: “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.”
 
Paul Noble, CEO of Chetwood Bank, said: “This latest rise in inflation is a financial gut punch for Britons preparing for the year’s most expensive season.
 

“It comes as no surprise following the uncertainty surrounding October’s budget announcement and could be a sign of a prolonged period of inflation above the government’s target. All eyes will now be on the Bank of England’s interest rate announcement on Thursday to see how they react to this news.”

“With inflationary pressure still unrelenting, consumers must be more proactive than ever about managing their money – missing out on competitive rates and leaving funds in old savings accounts, or their current account, is just leaving money on the table. Financial institutions must play their part by providing products and support that can help Britons navigate yet another tricky economic period.”