U.K. consumer price inflation falls to 10.7% in November

The U.K.'s recently published November consumer price index (CPI) showed a lower-than-projected rate, dropping slightly to 10.7 percent from 11.1 percent in October. Analysts had previously predicted that the year-over-year CPI for November would hit 10.9 percent. Based on data, last month’s decline was the sharpest in 16 months for the U.K.

The price of crude oil started to decline last year following forecasts that a recession in the U.K. would last until the end of next year. The year-over-year price increase for fuel in November was 17.2 percent, down from 22.2 percent in October. The declining crude oil price has resulted in lower transportation costs.

Inflation in clothing costs has started to wane as well, as most consumers cut spending on wardrobes. The annual price increase for clothing in November was 7.5 percent, against an 8.5 percent annual inflation rate from the previous months. Retailers in Europe and the U.S. have increased their supply to deal with the situation.

Secondhand car prices also contributed to the decline in inflation. Despite posting a year-over-year 31 percent increase back in March, the market’s inflation fell to 5.8 percent in November.

Analysts, however, have noted that consumer prices continue to rise. Based on data from the Office for National Statistics, U.K. residents still faced high costs for hotels, hospitality and restaurant meals. These three categories pushed monthly consumer prices higher in November from 9.6 percent in the previous month.

As costs for necessities increase, the government is pressured to increase wages across the public sector to protect people’s purchasing power. Trade unions usually use the retail price index as the foundation for annual pay claims, but the inflation in retail prices only went down to 14 percent in November from 14.2 percent.

The main concern for the Bank of England’s (BoE) Monetary Policy Committee (MPC) at the moment is high wage claims from trade unions across the country due to an inflation rate that remains at double digits. Higher wages may lead to another cycle of price increases in 2023.

Data shows that wage claims across the public and private sectors in the country average four percent. However, the low claim rate, relative to inflation, has led to a significant decrease in living standards for most residents.

The public expects the BoE to increase the benchmark rates during its rate-setting meeting on Thursday. Most analysts agree that the central bank will raise the base rate by 50 basis points to 3.5 percent.

Projection for 2023

U.K. Chancellor of the Exchequer Jeremy Hunt said the country’s economic situation would worsen at the beginning of 2023 before eventually starting to improve. Hunt explained that the impacts of COVID-19 and Russia’s “weaponization” of energy mean that high inflation will remain across Europe for a while.

“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,” Hunt added.

Resolution Foundation senior economist Jack Leslie said inflation in the U.K. had peaked, meaning the condition would improve in the following months. Leslie added that it was “good news” for lawmakers because they had been grappling with public debt and tight monetary policy for months. However, the economist also argued that the living cost crisis would get worse in 2023, especially for low-income families.

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