Last month, the Consumer Price Index (CPI) rate of inflation rose to a 41-year high of 11.1 percent with soaring energy prices and the war in Ukraine continuing to have a knock-on effect. In an attempt to address the soaring cost of goods and services, the Bank of England’s Monetary Policy Committee (MPC) has opted to raise the UK’s interest rates over the last couple of months. Currently, the UK’s base rate is at three percent but this is expected to increase once again by at least 50 basis points once the central bank’s MPC reconvenes tomorrow (December 15).
According to figures from Office for National Statistics (ONS), the largest contribution to the annual CPIH inflation rate in November 2022 came from housing and household services, primarily from electricity, gas, and other fuels.
As well as this, food and non-alcoholic beverages attributed to this changed rate. On a monthly basis, the CPIH figures rose by 0.4 percent in November 2022, compared with a rise of 0.6 percent in November 2021.
In comparison, the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between October and November 2022 came from the transport sector.
This was particularly notable with motor fuels, with soaring prices in restaurants, cafes and pubs making the largest, partially offsetting, upward contribution.
Earlier this week, the UK’s unemployment figures for August to October 2022 increased by 0.1 percentage points to 3.7 percent. During the same quarter, the estimated number of vacancies in the country dropped by 65,000 to 1,187,000.
Workers have also seen their total and regular pay decrease by 2.7 percent in real terms over the last 12 months. This drop in real wages for employees represents one of the largest falls since comparable records began.
Joe Nellis, a professor of global economy at Cranfield School of Management, broke down what today’s inflation figures mean for the nation. Professor Nellis explained: “We are in a precarious position and we are going to experience a sustained fall in living standards over the next two years, the likes of which we haven’t seen in 100 years.”
Meanwhile, inflation in the United States appears to have slowed down following consistent intervention by the Federal Reserve. On a year-to-year basis, inflation in the States rose to 7.1 percent which is a drop from the 7.7 percent reported in October.
Reacting to today’s news, Jeremy Batstone-Carr, a European strategist at Raymond James Investment Services, noted while today’s inflation rate drop will spread “Christmas cheer”, families are still left with sky-high bills to pay for.
The financial expert explained: “At 10.7 percent, this is still well above the Bank of England’s two percent inflation target, so this is just the end of the beginning for the Monetary Policy Committee. In October the price cap increase drove a 42.7 percent uptick in utility prices, but the now-fixed price cap has thrown water on the flames of burning energy price inflation.
“Food inflation is also moderating, while sterling’s rebound on the foreign exchanges should ensure that other imported inflationary pressures diminish too.”
On Twitter, economist Julian Jessop stated: “Difficult to get too excited when UK CPI #inflation was still 10.7 percent in November, but the fall from 11.1 percent in October is obviously welcome and the core rate (excl. food & energy) fell too (from 6.5 percent to 6.3 percent). Main worry: CPI food price inflation rose further, from 16.2 percent to 16.4 percent.”
Suren Thiru, economics director at ICAEW, outlined how the central bank’s thinking may be affected with today’s inflation drop. He said: “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. Although another large interest rate rise on Thursday is inevitable, a growing split in Monetary Policy Committee voting could point to a more moderate pace of monetary tightening as recession risks crystallise.”
Colin Dyer, a financial planning expert at abrdn, added: “Households have been slammed by climbing inflation for months, and while it has slowed for now, many will still be feeling the pinch. To make ends meet right now, some people may understandably be thinking about taking from savings or pensions. Wherever possible, we’re urging people to consider the long-term implications of this – especially dipping into retirement savings.
“There can be hefty tax penalties, and it can seriously limit options for the future. Before taking any financial steps that could impact your future savings, we always recommend first speaking to a professional financial adviser. They’ll be able to walk you through all options and possible outcomes, and set plans to help ensure your long-term financial plan remains on track.”