LONDON (AP) — Inflation in the U.K. surged to its highest level in eight months in November 2024, official figures revealed on Wednesday, reinforcing expectations that the Bank of England (BoE) will refrain from cutting interest rates at its policy meeting on Thursday.
According to the Office for National Statistics (ONS), consumer price inflation rose by 2.6% in the year to November, up from 2.3% in the previous month. The uptick was mainly driven by persistent inflation in the services sector, which makes up around 80% of the U.K. economy, and a rise in fuel prices.
The latest increase, which pushed inflation further away from the BoE’s target of 2%, was in line with market expectations. This marks the biggest rise in inflation since March 2024, leading economists to rule out any chance that the Bank of England will cut its benchmark interest rate from the current 4.75% this week.
Inflationary Pressures Persist
James Smith, research director at the Resolution Foundation economics think tank, noted that the data highlights the ongoing challenge the U.K. faces in curbing inflation. He remarked that the “latest data shows the challenge Britain faces in squeezing inflation out of the economy.”
Rate-setters at the BoE had anticipated a rebound in inflation when they last lowered interest rates in early November 2024, as price pressures had eased earlier in the year. For instance, in September, inflation had dropped to its lowest level since April 2021.
Despite a drop from the multidecade highs experienced in 2022, inflation remains elevated compared to historical norms. This, in part, reflects the ripple effects of supply chain disruptions, particularly from the pandemic, and the Russian invasion of Ukraine, which led to skyrocketing energy prices. While inflation rates have generally come down globally from their peaks, few economists expect central banks to return to the ultra-low interest rates that prevailed after the 2008 financial crisis.
Slower Rate Cuts Expected in 2025
Recent data has led economists to scale back expectations for rapid rate cuts by the Bank of England. Rising wages and persistent inflation in the services sector have made many economists less optimistic about a swift reduction in borrowing costs in 2025.
Critics argue that recent fiscal measures, particularly the Labour government’s October 2024 budget, could add to inflationary pressures. The government’s increased public spending is to be funded largely through higher business taxes and borrowing, which some believe could lead to price hikes as businesses pass on costs to consumers.
As inflation remains a significant concern, analysts expect the Bank of England to maintain its cautious stance, focusing on carefully managing the economic recovery while attempting to prevent further inflationary pressures from destabilizing the economy.
Outlook for the Economy
Despite inflationary challenges, inflation rates in the U.K. and across much of the world are still far lower than the levels seen in the immediate aftermath of the pandemic and the energy crisis that followed the Ukraine conflict. The BoE and other central banks worldwide have been navigating this difficult terrain, balancing between supporting growth and curbing inflation. However, as economic conditions evolve, inflation control remains a central priority for policymakers in the coming months.