In the United Kingdom, inflation showed an increase in November, reaching 2.6%.
The mentioned information was published by the UK Office for National Statistics on Wednesday, December 18. It is worth noting that inflation has been rising in the United Kingdom for the second month in a row. The November figure coincided with the preliminary expectations of economists surveyed by the media.
In October, inflation in the United Kingdom was fixed at 2.3%.
Core inflation in the mentioned country was 3.5% last month. It is worth noting that economists interviewed by the media predicted that this indicator would be fixed at 3.6%. Core inflation does not take into account prices for energy, food, alcohol, and tobacco.
In September, headline price rises hit a three-and-a-half-year low of 1.7% in the United Kingdom. It was expected that this indicator will grow in the coming months. The corresponding forecasts were related, among other things, to an increase in the regulator-set energy price cap this winter.
Joe Nellis, economic adviser at accountancy MHA, said in a media commentary that the upward trajectory of inflation in the United Kingdom looks set to continue over the next few months. In this context, the expert mentioned the situation in the energy market and the long-term pressure of the tight domestic labor market. Joe Nellis stated that these structural issues would be exacerbated as a result of UK government decisions. In the relevant context, higher public sector pay settlements, an increase to the minimum wage, and pressure on businesses caused by a hike in tax contributions for employers were meant.
Persistent inflation in the services sector, the dominant segment of the United Kingdom’s economic system, has caused money markets to currently assess as almost zero probability that the Bank of England will decide on cutting interest rates at its last meeting this year. The corresponding expectations are realistic. In this case, it is worth mentioning the data published at the current week by the UK Office for National Statistics that in the period from August to October, regular wage growth strengthened to 5.2%. In the period from July to September, this indicator increased by 4.9%.
November inflation in the UK services sector was fixed at 5%. It is worth noting that the corresponding indicator did not show any changes.
Research group Capital Economics said that the data released on Wednesday firmly rule out the likelihood that the Bank of England will decide on lowering the cost of borrowing in the current month.
George Dibb, associate director for economic policy at the Institute For Public Policy Research (IPPR), noted in a comment to the media that November’s overall inflation figures are generally in line with forecasts by the financial regulator of the United Kingdom. According to the expert, the real reason for concern is the UK’s economic growth, which turned out to be weaker than the Bank of England’s expectations.
In October, the United Kingdom’s economy contracted by 0.1%. This downward dynamic came as a surprise. It is worth noting that the October result indicates that the economy of the United Kingdom contracts for the second month in a row.
After the UK inflation data was published, the British pound continued to trade 0.06% lower against the dollar and 0.19% lower against the euro.
This year, the Bank of England has made two decisions on cutting its key rate. Currently, the corresponding indicator is at 4.75%. According to most experts, at the December meeting, Bank of England officials will not make another decision on lowering the cost of borrowing. At the same time, the European Central Bank once again cut interest rates in the current month and announced its intention to continue easing monetary policy next year. It is also expected that this week the Federal Reserve will make another decision on lowering the cost of borrowing. It is worth noting that some experts doubt the expediency of such a decision due to the continuing inflationary pressure.
The results of a survey conducted by the Confederation of British Industry (CBI) indicate that in December, total orders at UK factories fell to the lowest level since November 2020. This survey shows that in recent months the condition of the United Kingdom’s economic system has not been positive.
It is worth noting separately that UK manufacturers have faced not only a drop in export orders but also a decrease in commissions from local customers. A balance of firms that said total orders were up or down at -40, from -19 in November.
Ben Jones, CBI lead economist, said that UK manufacturers are currently in the territory of exposure to two sensitive factors, including falling external demand and the negative dynamic in the context of domestic business confidence. As for export activities, in this case, the negative circumstances were political turbulence, forming an unfavorable situation in some of the largest European markets, and a high level of uncertainty regarding the likely trade policy of the administration of Donald Trump, who won the United States presidential election last month and will return to the White House in January. In the context of the decline in UK business confidence, it is worth noting that, within the framework of the relevant problem, a negative attitude towards the budget became an impact factor, which provoked the growth of costs. Also, in this case, widespread reports on the cancellation of projects and falling orders became an important circumstance.
In the context of the current configuration of economic reality, UK factories have declined production volumes. According to the CBI, the balance of companies showed a decrease in output in 15 out of 17 sub-sectors in the three months to December.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the CBI survey revealed a collapse in total orders that corroborated the signal from December’s flash Purchasing Managers’ Index (PMI) that the outlook for the manufacturing sector has deteriorated sharply. The expert also noted that the results of the mentioned survey may be volatile, but it highlights the difficulties that the Bank of England’s monetary policy committee (MPC) will face at a meeting this week.
MPC is currently seeking confidence that inflation in the United Kingdom will remain low in the medium term. At the same time, in this case, there are no arguments in favor of unambiguous or, at least, significant optimism in the context of prospects. The vision of the future is overshadowed by difficulties faced by businesses hit by higher taxes from April next year. Also, in this case, the resistance of the Bank of England to cut interest rates should be mentioned. The combined effect of the mentioned factors may trigger the implementation of a recession scenario in the space of the United Kingdom’s economic system.
Also on Wednesday, it became known that the annual growth in house prices and rents accelerated in the UK. The relevant data were published by the United Kingdom Office for National Statistics. The average property cost in October in the UK was fixed at 292,000 pounds ($370,000). This indicator increased by 3.4% year-on-year.
In England, the average house price was fixed at 309,000 pounds. This indicator increased by 3% year-on-year. In Wales, the average house price was 222,000 pounds. In this case, an increase of 4% year-on-year was recorded. In Scotland, the average house price was 197,000 pounds. This indicator increased by 5.5% year-on-year.
In Northern Ireland, the average house price for the third quarter of 2024 was fixed at 191,000 pounds. This indicator increased by 6.2% year-on-year.
Average private rents in November in the private sector in the United Kingdom increased by 9.1% year-on-year. The corresponding figure was fixed at 1,319 pounds.
JPMorgan Chase economist Allan Monks said that against the background of strength in wage growth, there is another reason to question the extent to which non-energy intensive services which are more sensitive to labour input costs will moderate in the near future. According to the expert, the November data probably will not be a factor of significant impact on the current MPC debate. In the relevant context, it was noted that the mentioned probability is relevant, even though headline services and inflation, in general, turned out to be a bit stronger compared to the forecast of the Bank of England.
Allan Monks stated that currently, the dominant themes in the United Kingdom are the post-budget reaction by businesses and ongoing strength in wage growth. According to the expert, both of these themes are relevant because inflation evolves over time and takes the focus away from the spot data somewhat.
