The ONS has announced today that for the month of November, UK inflation has risen to 2.6%. The rise, which was up from 2.3% for October, was broadly in line with expectations and had rising prices of fuel and clothing as the main culprits behind this latest hike. It takes inflation to the highest level for 8 months and creeping ever further from the Bank of England’s 2% target level.
While the cost of living pressures look set to remain for now, the key question on advisers minds is what will these data mean for the Bank of England’s Monetary Policy Committee as they ponder whether to change the level of UK base rates ahead of the announcement at midday tomorrow? As 2024 draws to a close, there seems little hope of an early Xmas present from the Bank by way of an interest rate cut.
Industry experts have been sharing their reaction to the latest inflation data with us as well as their expectations of what it means for tomorrow’s base rate decision, for markets, for the economy and for people’s finances.
Sharing his reaction to the data, Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, comments:
“With this reading, CPI inflation is currently running slightly ahead of the 2.4% BoE forecast for the fourth quarter of 2024. In the data, services CPI inflation remains elevated at 5.0% year-over-year. Within services, there are still pockets of inflation, like rents in the housing category, which are running north of 7% per year.
“The uptick in annual and core inflation from the previous month makes it unlikely the Bank of England (BoE) will cut interest rates tomorrow. The monetary policy committee will be wary that services inflation becomes stuck at an elevated level and particularly after this week’s release of the October higher-than-expected average hourly earnings data, which is correlated to services inflation.
“Outside of services, goods inflation came in at 0.4% year-on-year in October and remains a drag on the overall rate of inflation.
“Looking further on, the UK inflation trajectory will be complicated by the demand boost from the Budget at the end of October after the Government relaxed fiscal rules. The hike in the National Minimum Wage and Employers National Insurance (both from April) and their impact on encouraging producers to raise prices to maintain profit margins is another consideration for the BoE.
“Stubborn inflation may lead the BoE into a more modest rate-cutting cycle. So, it looks like it will skip the opportunity to cut interest rates tomorrow and it’s probable that the next BoE interest rate cuts will come at the 6 February and 8 May BoE meetings.”
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “In more depressing news for the Chancellor, inflation came in at 2.6% for November, as compared to 2.3% for October. Combined with two quarters of shrinking GDP, this puts the UK firmly in stagflation territory. This also puts the Bank of England’s interest rate cut firmly on hold. All market watchers are waiting eagerly for the proverbial “growth” to happen, otherwise it is tiring to repeat the same litany of woes for a stalled UK economy. But going into the New Year, all that comes to mind is the D-Ream song, “Things can only get better”, hopefully.”
Danni Hewson, AJ Bell head of financial analysis, comments “Households really won’t care that at 2.6% inflation is significantly lower than that the levels we all experienced at the height of the cost-of-living crisis, all they’ll really care about is that prices are still rising faster than any of us would like.
“It means less money in our pockets and even with average wage growth still nicely overshooting that figure, cumulatively we’re all still reeling from the impact the last couple of years has had on our finances.
“Whilst prices do naturally rise and fall, meaning the increases in fuel and clothing costs aren’t really cause for specific concern, it’s the stickiness of service sector inflation that will be drawing the attention of Bank of England rate setters who are about to make their last decision of 2024.
“Even before today’s CPI data and yesterday’s wage data markets had already priced out a December cut which had seemed almost inevitable back in the early autumn. What’s changed is where markets expect rates will go in 2025.
“A few weeks ago, Andrew Bailey suggested that four cuts looked likely over the next 12 months, taking the base rate from 4.75% to 3.75%. Looking today more than a third believe it will take until the August meeting for the MPC to pull out two quarter percentage point cuts.
“Higher for longer borrowing costs are just another potential pitfall businesses are having to factor into their planning, and higher for longer rates aren’t exactly the best medicine for supercharged economic growth.”
Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said: “After an unexpected climb last month, the last thing anyone wants as we approach the most expensive time of year is another increase to 2.6%.
“After a near-constant decline in 2024, many will hope that 2025 brings more inflationary stability. Yet, the Bank of England has signalled that the journey ahead may be far from smooth sailing, warning of potential turbulence throughout the next year. Alongside other headwinds, the latest Budget from the Government may stir the waters further, as its full impact remains uncertain for now.
“For savers and investors, particularly those in drawdown, it will be vital to keep a close eye on inflation trends and risk levels to chart a steady course ahead. As always, advisers will play a critical role in this process.”
Commenting on the inflation data, Lindsay James, investment strategist at Quilter Investors said: “The latest inflation data shows the headline figure ticking up from 2.3% to 2.6% year-on-year, broadly in line with expectations. However, the month-on-month rate came in at just 0.1%, a marked slowdown from the 0.6% figure seen last month when the Energy Price Cap hike pushed prices higher. This suggests the year-on-year rise is less about a resurgence in inflationary pressures and more a reflection of base effects from the previous year.
“The Bank of England has consistently warned that inflation could face upward pressure towards the end of this year before falling more sustainably in 2025, as it laps the steep fall in energy prices that occurred in mid-2023. In reality, inflation has been less pronounced than anticipated, with goods inflation remaining muted as oil prices have weakened further.
“Service inflation, however, continues to be the main challenge. But looking ahead, there are reasons to be optimistic that it can be brought under control. Labour market data indicates a softening in vacancies, with the estimated number of vacancies in the UK falling to 818,000 in September to November 2024 – a decrease of 31,000, or 3.7%, compared to the previous quarter. This trend, combined with higher National Insurance costs for employers, is expected to bring wage inflation back towards 2-3%. While slower wage growth may be unwelcome news for workers, given wages account for around 60% of costs in a typical service sector business, it will help headline inflation return closer to the Bank’s 2% target.
“If these trends persist, it could pave the way for rate cuts in the UK next year. Markets currently expect just over two 0.25% cuts by the end of 2025, a far more cautious outlook compared to the ECB, where rates are forecast to be reduced between four and five times over the same period.”
Sarah Pennells, Consumer Finance Specialist at Royal London said: “Although today’s rise in inflation was expected, any increase is not the news consumers will have been hoping for. Inflation isn’t rising at the rates we saw in 2022 and 2023, but the three plus years of higher prices and bills is taking its toll on consumers’ finances.
“Our cost of living research shows that rebuilding financial resilience is taking time, with almost one in ten UK adults saying they couldn’t afford an unexpected bill of any size from their income or savings and one in five saying they could only afford an unexpected bill of up to £250. Christmas is the most expensive time of year for many households, and the start of the year sees higher bills – from credit cards to energy.
“Our research also shows that over eight in ten UK adults are worried about rises in the cost of energy and food, and one in five are regularly overdrawn at the end of the month or have to dip into the red from time to time. Rising inflation will make it even harder for those already finding it a challenge to afford the essentials and to get their finances back on track.”
Tom Stevenson, investment director at Fidelity International, said: ‘A second consecutive rise in inflation is unwelcome, if not unexpected, news. Combined with the recent stalling in growth, it paints a picture of a UK economy battling to escape the clutches of stagflation.
‘The Bank of England will feel less inclined to add to its rate cuts in August and November as the monetary policy committee meets this week for the last time in 2024. The UK appears to be falling behind other central banks as they continue to lower the cost of borrowing.
‘Stronger food, clothing and fuel costs were part of a broad-based rise in prices. Goods inflation turned positive after a string of falls and service sector inflation remains well above target. Added to firmer inflation expectations in the wake of Rachel Reeves’s first Budget, the new data adds to the government’s dilemma as it seeks to boost growth in an economy that has stopped expanding since the election.
‘The UK stock market remains one of the cheapest in the developed world, but the lack of domestic growth and persistent inflation makes it harder to spot the catalyst for a re-rating.’
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.”
In terms of what these data might mean for the property market, Nick Hale, CEO of Movera, commented:
“There is little festive cheer in today’s figure which marks the second consecutive month that inflation has risen. Driven by higher energy costs and services inflation, the figure is even further adrift from the Bank of England’s target. Christmas is unlikely to come early on Thursday either, as the Bank of England’s Monetary Policy Committee is predicted to hold off on lowering interest rates.
“It would be good to think that the rise is a temporary blip. But there are too many unknowns, including the longer term impacts of the Government’s Budget which has so far rattled business confidence. What is certain is that we are still in the midst of a housing crisis. To give homebuyers a much-needed confidence boost, we can only hope that the Bank of England’s New Year resolution will be to lower interest rates as soon as it can. As ever, our focus at Movera will be on providing fast and reliable services for those looking to move or remortgage this year.”
Richard Pike, chief sales and marketing officer at Phoebus Software, commented:
“Although expected, this rise probably means any residual hopes in the industry of a drop in the Bank Rate tomorrow can be packed away until the New Year.
“Today’s figure will be a cause for concern for those consumers who have already been tightening their belts due to austerity measures. However, as with the base rate, inflation will also drop in 2025 – it’s just a question of when rather than if. Arrears levels are still under control and this is a good indication that borrowers are prioritising secure debt where they can and lenders are using forbearance techniques where necessary. The expected lower inflation and rates next year will only improve this picture.
“In terms of 2025 gross mortgage lending, even with today’s figures we should expect volumes to be up in most product areas boosted by future lower rates and a generally better economic outlook than we have seen for some time. In particular, volumes in later life lending will increase again next year as more people over the age of 55 who have equity in their homes consider how they can take advantage of it with equity release to improve their later life requirements.”
Simon Webb, managing director of capital markets and finance at LiveMore, commented:
“Inflation has crept up from 1.7% in September to 2.3% in October and reached 2.6% in November. This latest rise in inflation isn’t surprising, bearing in mind financial market reactions to the Autumn Budget and the hike in energy bills.
“It’s not great news for consumers still straining to make payments. This financial climate can be particularly challenging for borrowers aged 50 to 90 plus. Mid-life borrowers are struggling to get on the housing ladder, while borrowers who have come to the end of their interest-only term and can’t pay off the capital, mistakenly believe themselves to be trapped on their lenders’ standard variable rates. Many aren’t mortgage prisoners at all but are eligible for affordable specialist and mainstream loans aimed specifically at these age groups.
“These latest inflation figures will probably reinforce predictions that the Bank of England will skip a December cut in the Bank Rate.”
