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UK inflation falls from 41-year high as fuel price rise slows

LONDON — UK inflation came in slightly below expectations at 10.7% in November, as cooling fuel prices helped ease price pressures, although high food and energy prices continued to weigh on households and businesses.

Economists polled by Reuters had forecast an annual rise in the consumer price index of 10.9% in November, after October saw an unexpected rise to a 41-year high of 11.1%. On a monthly basis, the increase in November was 0.4%, down from 2% in October and below a consensus estimate of 0.6%.

The Office for National Statistics said the biggest upward contributions came from “housing and household services (mainly from electricity, gas and other fuels), and food and non-alcoholic beverages.”[ads1];

The largest downward contributions during the month came from “transport, particularly motor fuel, with rising prices in restaurants, cafes and pubs providing the largest, partially offsetting, upward contribution.”

The Bank of England will announce its next monetary policy move on Thursday. It is widely expected to raise interest rates by 50 basis points as it juggles soaring inflation and an economy that policymakers say is already in its longest recession on record.

The country faces widespread industrial action over the Christmas period, as workers strike to demand pay rises closer to the rate of inflation and better working conditions.

The independent Office for Budget Responsibility estimates that Britain will suffer its biggest fall in living standards since records began, as real household income is expected to fall by 4.3% in 2022-23.

Britain’s Chancellor of the Exchequer Jeremy Hunt last month announced a sweeping 55 billion pound ($68 billion) fiscal plan, including a series of tax increases and spending cuts, in a bid to plug a significant hole in the country’s public finances.

A positive step, but the risk remains

While the drop in Wednesday’s figures is a step in the right direction, the persistent problem of rising food prices and household energy bills remains a thorn in the side of the UK economy, noted Richard Carter, head of fixed income research at Quilter Cheviot.

However, Carter hinted that inflation may finally pass the peak, after the US also published a better-than-expected CPI print on Tuesday.

“Temperatures have taken a sharp dive in the last week or so and demand for gas will no doubt have increased as people are forced to heat their homes,” Carter added.

“As the autumn had been quite mild, we will only now start to see the real impact of higher energy bills. Although government support remains in place for the time being, changes made as the April deadline is reached could have a knock-on effect on inflation. .”

The Bank of England faces a difficult task in trying to pull inflation back towards its 2% target while remaining aware of a weakened economy. This was evident in the latest UK labor market data earlier this week, which showed a rise in both unemployment and wage growth.

“While inflation is falling, it remains well ahead of wages and we are heading into another winter of discontent with strikes concentrated in the unionized public sector and formerly nationalized industries as a result,” Carter said.

The market is pricing in an interest rate increase of 50 basis points from the bank on Thursday, taking the reference rate to 3.5%. Politicians have signaled a potential slowdown in the pace of growth in 2023. However, inflation is still well above target.

“The Chancellor’s Autumn Statement in November helped settle the waters after months of significant turbulence, but inflation remains well above the Bank’s 2% target, meaning there is still a long way to go,” Carter said.

“A rapid fall in inflation is highly unlikely, but it is positive to see that it is finally moving in the right direction.”

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