Higher petrol prices were one of the main reasons for the rise in inflation © Simon Dawson/Bloomberg
UK inflation has soared to its highest level in a decade, hitting 5.1 per cent in November, far outstripping expectations.
The level exceeded economists’ forecasts that the annual rise in consumer prices would jump from 4.2 per cent in October to 4.8 per cent last month, and was significantly higher than the Bank of England’s prediction that it would step up to 4.5 per cent.
The BoE did not expect the inflation rate to exceed 5 per cent until spring next year. The rate is now more than two-and-a-half times its 2 per cent inflation target it is supposed to hit at all times.
The inflation figure, alongside strong labour market data released on Tuesday, would have been enough to prompt an interest rate rise from the BoE’s Monetary Policy Committee on Thursday. But the rapid spread of the Omicron coronavirus variant has increased uncertainty in the UK economy.
The IMF on Tuesday told the BoE not to get bogged down with “inaction bias”, however, saying it should raise interest rates to prevent inflation becoming ingrained.
The UK’s Office for National Statistics said that the principal reasons for the rise in inflation were petrol prices and second-hand car prices, but there were upward contributions to inflation across almost all goods and services, implying broad price pressures across the economy.
Grant Fitzner, ONS chief economist, said: “A wide range of price rises contributed to another steep rise in inflation, which now stands at its highest rate for over a decade.
He Added: “The price of fuel increased notably, pushing average petrol prices higher than we have seen before. Clothing costs — which increased after falling this time last year — along with price rises for food, second-hand cars and increased tobacco duty all helped drive up inflation this month.”
Paul Dales, UK economist at Capital Economics, said there was evidence of “persistent price pressures” in the data with the core inflation rate, excluding energy, food, alcohol and tobacco, rising from 3.4 per cent in October to 4 per cent in November, twice the BoE’s target.
“The BoE may still just about be able to ignore surge in inflation . . . for now,” he said.
Inflation is expected to remain close to 5 per cent until April, when the next rise in the energy price cap will lead to another jump. The IMF on Tuesday expected the rate to peak at 5.5 per cent, but economists have been surprised almost every month this year by inflation rising faster than they thought.
Samuel Tombs, UK economist at Pantheon Macroeconomics, said the November rate was “uncomfortably high” for the BoE and the rate was likely to “soar to about 6 per cent in April” before falling when this year’s price increases fall out of the annual comparison.
He still expected the BoE to take no action this week because “Omicron necessitates a little more patience”.
One of the reasons inflation has been high in the goods sector has been very large increases in costs with manufacturing input prices rising at an annual rate of 14.3 per cent in November, according to the ONS. This led the prices charged by UK manufacturers to rise 9.1 per cent compared with the same month last year.
The discredited RPI measure of inflation, which still underpins index-linked government bonds surged in November to an annual rate of 7.1 per cent, the highest on this measure since March 1991, more than 30 years ago.