UK inflation ‘eases slightly’ to 10.7%; but Hunt warns ‘wrong choices’ would prolong the pain – business live

Several economists are warning that the UK’s cost of living crisis will continue into next year, even though the pace of price rises across the country slowed a little in November.

The Resolution Foundation point out that poorer households are suffering an even higher inflation rate than average.

The effective inflation rate for the poorest tenth of household is around 12.1%, Resolution has calculated, while the richest tenth of households experience 9.4%.

Jack Leslie, senior economist at the Resolution Foundation, explains:

“Inflation fell at its fastest rate in 16 months in November, driven by falling fuel price inflation and a welcome slowing in food price inflation. Britain may now be past its inflation peak, which is good news for policy makers at both the Bank and Treasury as they grapple with rising interest rates and public debt.

“But with price rises still massively outstripping pay rises – and Britain’s poorest families facing an inflation rate of over 12 per cent – families are still getting poorer month-on-month, and the cost-of-living crisis will continue to deepen in 2023.”

Joe Nellis, professor of global economy at Cranfield School of Management, warns:

We are going to experience a sustained fall in living standards over the next two years the like of which we haven’t seen in 100 years.

We are in a precarious position.”

Nicholas Hyett, investment analyst at Wealth Club, points out that higher interest rates will also add to the pressure on some households:

“While the annualised rate of inflation slowed in November, consumers are unlikely to feel any relief in the cost of living crisis. Prices overall continue to rise, with food prices in particular rising at their fastest rate in 45 years. What relief there is for consumers comes mostly in transport – but petrol prices have remained parked month-on-month rather than going into reverse.

This raises some difficult questions for policy makers. On the one hand headline inflation is easing, but whether that’s due to a weakening in local demand or simply global commodity prices is less clear. Areas like hospitality, which are more affected by domestic inflation, continue to see prices rise substantially, suggesting “core inflation” remains untamed. That’s a headache for central bankers – raising rates might help bring domestic inflation under control, but it will also exacerbate the cost of living crisis and potentially condemn the UK to a painful recession.

Although the inflation rate has fallen, at 10.7% prices are still rising over five times higher than the Bank of England’s target of 2%.

That means the Bank is expected to raise interest rates again tomorrow, perhaps to 3.5% from 3%.

Tom Stevenson, investment director for Personal Investing at Fidelity International, explains:

“Inflation has almost certainly peaked now, with the year on year comparisons likely to keep the headline rate of price rises falling from here. However, a lower rate of inflation does not mean a fall in the cost of living and that will continue to squeeze the UK economy through 2023.

“The UK has some unique inflationary drivers so inflation is certain to remain a bigger problem here than in the US, which also saw a fall in the pace of price rises this week. That means the Bank of England will need to keep up the monetary squeeze at tomorrow’s interest rate announcement.

UK households face a steep fall in living standards due to high inflation, warns Andrew Tully, technical director at insurance company Canada Life:

Tully explains:

“While the headline numbers grab the news, the reality is underlying personal inflation rates for the things we buy every week, like food and energy, are running way above these headline figures, and our wages and pensions are simply not keeping up.

“We are heading into a period where our living standards are predicted to fall by the largest amount since records began, and today’s inflation numbers will offer little comfort. As an example of the price pressures we face, four pints of milk cost £1.17 in September 2021 but that had increased rapidly to £1.52 by Sept 22. However, even as inflation slows, the price of that milk is likely to stay high, with the price simply not rising as fast as previously. The official economic forecasts are predicting a deep and protracted fall in living standards while we wait for our incomes to catch up.

“For retirees on fixed incomes, the confirmation of a double-digit rise in the state pension from next April is helpful but is likely to offer little comfort in the winter months as the prices pensioners pay for everyday goods is still much higher.”

The latest data leaves each UK household needing to find £2679 extra a year to maintain living standards, or the UK collectively £74.5 billion.

The drop in the UK’s CPI rate last month may suggest that inflation has peaked.

But, inflation still remains at a “precariously high rate”, says Suren Thiru, economics director at ICAEW (Institute of Chartered Accountants in England and Wales) and is “having a real impact on people and businesses”.

Thiru warns that the pace of easing in inflation could be slow:

“November’s slowdown could be the start of a painful deceleration in inflation as slowing demand, rising interest rates and falling commodity prices weaken the headline rate, but at the cost of a protracted recession and notably higher unemployment.

“With inflationary pressures looking more broad-based, the pace of easing is likely to be slow, which implies that wage growth will continue to trail inflation for some time, providing little respite to financially-squeezed households.

Chancellor Jeremy Hunt has warned that inflation is “the number one enemy”, saying:

“The aftershocks of Covid-19 and (Vladimir) Putin’s weaponisation of gas mean high inflation is plaguing economies across Europe and I know families and businesses are struggling here in the UK.

“Getting inflation down so people’s wages go further is my top priority, which is why we are holding down energy bills this winter through our energy price guarantee scheme and implementing a plan to help halve inflation next year.

“I know it is tough for many right now but it is vital that we take the tough decisions needed to tackle inflation – the number one enemy that makes everyone poorer.

“If we make the wrong choices now, high prices will persist and prolong the pain for millions.”

That’s a signal that the Treasury isn’t dropping its opposition to paying public sector staff a pay rise that would match inflation.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK inflation has slowed, and by more than expected, thanks to an easing in costs of second-hand cars and motor fuel.

The annnual UK CPI index slipped to 10.7% in November, falling back October’s 41-year high of 11.1%, data just released this morning show.

The Office for National Statistics says the easing in annual inflation was principally due to “price changes in the transport division, particularly for motor fuels and second-hand cars.”

There were also downward effects from tobacco, accommodation services, clothing and footwear, and games, toys and hobbies. The largest, partially offsetting, upward effect came from price rises for alcohol in restaurants, cafes and pubs.

But as ONS chief economist Grant Fitzner points out, prices are still rising, just not as quickly.

Prices in restaurants, cafes and pubs made the largest upward contribution to the inflation rate, as the cost of going out jumped.

Fitzner says:

“Prices are still rising, but by less than this time last year, with the most notable example of this being motor fuels.

“Tobacco and clothing prices also rose, but again by less than we saw this time last year.

“This was partially offset by prices in restaurants, cafes and pubs, which went up this year compared to falling a year ago.”

On a monthly basis, CPI rose by 0.4% in November 2022, compared with a rise of 0.7% in November 2021.

Overall, fuel prices rose by 17.2% in the year to November 2022, down from 22.2% in the year to October.

The ONS says:

Average petrol and diesel prices stood at 163.6 and 187.9 pence per litre in November 2022, compared with 145.8 and 149.6 pence per litre in November 2021.

Also coming up today

America’s central bank sets interest rates later today, a day after inflation across the Atlantic fell faster than expected. US CPI rose by 7.1% per year in November, down from 7.7% in October, a bigger fall than expected.

This sparked a stock market rally yesterday, on hopes it could encourage the Federal Reserve to ease off on its interest rate rises.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

The softer-than-expected inflation print in the US sent the stocks higher and the US dollar lower, but the S&P500 couldn’t clear key resistance levels, as investors know that the Federal Reserve (Fed) Chair Jerome Powell could coldheartedly kill the market joy at his post-FOMC press conference today.

The agenda

• 7am GMT: UK inflation report for November

• 9am GMT: IEA monthly oil market report

• 9.30am GMT: UK house price index for October

• 7pm GMT: US Federal Reserve decision on US interest rates