UK Inflation – Will Prices Keep Rising?

UK inflation has risen for the second month in a row, with prices rising at the fastest pace since March. What does it mean to you?

The main measure of inflation – looking at how much prices had risen over the previous 12 months – rose to 2.6%.

That is much lower than its peak during the cost of living crisis. In 2022, inflation rose to 11.2% because oil and gas were in demand after the Covid pandemic, and energy prices rose again when Russia invaded Ukraine.

Inflation had fallen to 1.7% in September this year – the lowest level for over three years – but is now rising again.

The Office for National Statistics, which calculates the rate of inflation, highlighted the rising cost of petrol and diesel as one of the main reasons behind the recent rise in inflation.

Tobacco products rose after the Chancellor raised taxes on them in the Budget. Clothes, footwear and electronic games also cost more.

But in general, the price of services, such as theater and concert tickets, education and health, rose faster than goods.

Housing costs including rent, which is calculated under a different headline figure, also rose sharply in the year to November – up 7.8%.

But air travel saw its biggest price drop in November since the turn of the century.

Prices almost always go up a bit; around 2% per year is considered healthy inflation.

Much lower than that, people risk delaying purchases because they might be cheaper. A little inflation encourages you to buy faster – and that boosts economic growth.

But the Bank of England is currently forecasting inflation to rise to 2.75% in the second half of next year before falling again.

The government’s official forecasting body, the Office for Budget Responsibility, expects a similar increase. It has said policies announced in the latest Budget – including businesses passing on higher costs from increases in employers’ national insurance and the minimum wage – would help drive inflation higher.

No one is currently predicting another major burst of inflation, but predicting future price developments is difficult given all the factors that could affect them, from incoming US President Donald Trump’s trade policies to the mood of shoppers on the High Street.

On average, wages are now rising faster than prices, which is helping to ease the pressure, but of course prices for most things are still significantly higher than they were a few years ago.

Housing costs, whether rent or mortgage, are a particularly big source of financial pressure for many people.

Even if inflation falls next year, that doesn’t mean prices will fall. They will just increase more slowly and leave most things more expensive than they were before.

On Thursday, the Bank of England’s interest rate committee will meet to discuss whether the interest rate should be lowered.

They are not expected to bring rates down from their current 4.75%.

That’s because higher interest rates help keep inflation in check by dampening borrowing and spending. If the loan becomes cheaper, people are likely to have more money to spend, which could mean that prices rise faster.

So the higher inflation figure, added to the news earlier this week that wages are growing faster than previously, will have given the bank more reason to wait.

Investors are anticipating rate cuts next year, but expect them to come more slowly than expected a few months ago.