UK inflation rise – what does it mean for me?
Getty ImagesBritish inflation rose for the second consecutive month, with prices rising at the fastest pace since March. What does this mean to you?
What exactly happened to inflation?
Main measure of inflation – Find out how much prices have risen over the past 12 months – rose to 2.6%.
That’s much lower than the peak during the cost-of-living crisis. Inflation surged to 11.2% in 2022 as demand for oil and gas increased following the pandemic and energy prices soared again amid Russia’s invasion of Ukraine.
Inflation had fallen to 1.7% in September, its lowest level in more than three years, but is now rising again.
What has increased in price?
The Office for National Statistics, which calculates the inflation rate, highlighted the rising cost of petrol and diesel as one of the main reasons for the recent rise in inflation.
Tobacco product prices are rising after the chancellor increased taxes on tobacco products in the Budget. Clothing, footwear and video games also cost more.
But overall, prices for services such as theater and concert tickets, education and health care are rising faster than the prices of goods.
The cost of housing, including rent (based on a different headline figure), also rose sharply in the year to November – by 7.8%.
But air travel prices fell the most since early this century in November
Will prices continue to rise?
Prices almost always rise slightly; an inflation rate of around 2% per year is considered healthy.
Going well below that could cause people to put off buying because they might become cheaper. Mild inflation encourages you to buy sooner—thus boosting economic growth.
But the Bank of England now predicts inflation will rise to 2.75% in the second half of next year before falling again.
The Office for Budget Responsibility, the government’s official forecaster, expects a similar increase. It said policies announced in the recent budget – including businesses passing on the higher costs of employer national insurance and minimum wage increases – would help push inflation higher.
Will there be another cost-of-living crisis?
No one is predicting another major burst of inflation, but predicting where prices will go in the future is difficult given all the factors that could affect them, from incoming US President Donald Trump’s trade policies to the mood of high street shoppers. .
On average, wages are now rising faster than prices, which helps ease the pressure, but of course most things are still significantly more expensive than they were just a few years ago.
Housing costs, whether rent or mortgage, in particular are a major source of financial stress for many people.
Even if inflation does fall next year, that doesn’t mean prices will fall. They’ll just rise more slowly, making most things more expensive than before.
What does this mean for interest rates?
On Thursday, the Bank of England’s rate-setting committee will meet to discuss whether to cut interest rates.
They are not expected to cut rates from the current 4.75%.
That’s because higher interest rates help control inflation by discouraging borrowing and spending. If borrowing becomes cheaper, people may have more money to spend, which may mean prices rise faster.
So higher inflation data, combined with news earlier this week that wages are growing faster than before, will give the central bank more reason to wait.
Investors are considering rate cuts next year, but expect them to come at a slower pace than forecast just a few months ago.
