UK inflation is expected to have risen in November, in figures released on Wednesday, Dec. 18 by the Office for National Statistics. This is the final inflation print of 2024 and will come a day before the Bank of England announces its next decision on monetary policy, in which interest rates are expected to be held.
According to FactSet consensus, the headline UK Consumer Price Index rate is forecast to have moved upwards to 2.7% for the month of November from 2.3% in October. This would keep inflation above the Bank of England’s official 2% target in the penultimate inflation print of 2024. CPI briefly hit this target in 2024 and went below it in September, before rising again.
At the same time, core inflation, a measure that excludes more volatile energy, food and alcohol prices, is expected to have risen to 3.8% in November, from 3.3% in the previous month. Like the headline rate of inflation, this is another measure that is going in the “wrong” direction for policymakers.
Today fresh UK economic data also reveals the UK economy shrank by 0.1% in October, the second such contraction in as many months.
In their 2025 outlook, economists at ING say that inflation is proving “unhelpfully sticky”, particularly services inflation, which is set to stay around 5% into the new year.
Why is UK Inflation Rising Again?
What are the factors that are likely to have impacted changes in the cost of living last month? On Oct. 1, the Ofgem price cap was lifted for domestic energy prices, which saw gas and electricity bills rise again. The cap is due to change in January 2025 as part of the quarterly revision or prices. Storms hit the UK in November with heavy rainfall, but temperatures have not been unseasonably cold, which has held back energy demand.
Globally, oil prices have are largely unchanged over the month, but US spot natural gas prices are up significantly since October. These factors feed into both UK domestic energy and petrol prices. Because the UK imports gas from a variety of countries such as Norway, the US spot price is not the deciding factor for UK gas prices. But it does indicate the high levels of global demand in November as well as supply constraints.
This is the first inflation print since the Nov. 7 Bank of England meeting, where interest rates were cut from 5% to 4.75%. That was the second rate cut this year and is likely to be the last, according to financial market pricing.
The Budget Will Be Inflationary
Experts are also anticipating Labour’s first Budget will be inflationary in 2025, especially with higher taxes on workers and employers, and a rise in government spending.
The Bank of England now forecasts that new fiscal measures will add 0.50 percentage points to CPI and boost GDP by 0.75 percentage points. Even before the Budget measures, inflation was expected to rise again into 2025 because of tougher comparisons with energy prices in 2023.
In terms of this year’s trends, inflation has fallen from 4% in January to a low of 1.7% in September, a trajectory that has encouraged the Bank of England to cut rates from the peak of 5.25%. Recently Bank Governor Andrew Bailey said he expects four interest rate cuts in 2025, which would take the rate to 3.75%.
UK Inflation Reviving, as in the US and Eurozone
Inflation has been tamed globally after the surge from 2022 onwards, but what makes central bankers anxious is rising prices, which are evident in the UK, the US and eurozone.
Simultaneously, rates are widely assumed to have peaked for the current cycle and more cuts are expected in 2025. The European Central Bank cut rates on Dec. 12 and the Federal Reserve could loosen monetary policy in its last meeting of the year. The Bank of England’s latest statement in November talked of “squeezing remaining inflationary pressures out of the economy”, a job that’s not yet done.
UK inflation peaked above 11% in 2022 and has fallen sharply since. Bank of England interest rates rose from 0.1% in December 2021 to 5.25% in August 2023.
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