UK consumer inflation rises for second month in a row; UK CPI gains 2.6%

Investing.com – UK inflation rose for the second month in a row, largely cementing expectations for the Bank of England to leave interest rates unchanged at its meeting later this week.

Annual consumer price inflation climbed to 2.6% in November from 2.3% the prior month, surging further away from the Bank of England’s 2.9% medium-term target.

The monthly rate rose 0.1%, a more sedate increase than the 0.6% seen in October.

Analysts had expected the CPI to rise 2.6% on an annual basis, and 0.1% on the month.

There was some good news, as core CPI, which excludes volatile energy and food prices, came in flat on a monthly basis, meaning the annual rate rose to 3.5%, below the expected 3.6%, from 3.3% in the prior month. 

The annual headline figure actually fell to 1.7% in September, which was the lowest reading since April 2021, but has since rebounded above the crucial 2.0% level, while still remaining some way below the 11% it peaked at two years ago after the outbreak of the Ukraine war.

Data released on Tuesday showed that British pay rose more than expected in the three months to October. This raised expectations that worries over underlying inflation pressures will ensure the Bank of England takes a very cautious stance on interest rate cuts next year, particularly in the wake of the Oct. 30 budget, which increased taxes on employers, threatening to push up prices and wages.

The next meeting of the Bank of England’s Monetary Policy Committee, the group that determines the country’s base rate, is on Thursday, and the central bank is expected to pause its rate-cutting cycle then.

Money markets show traders expect the BoE to cut rates by around 70 basis points next year, compared with expectations for roughly the same scale of cuts from the Fed and around 120 bps in cuts from the European Central Bank.