Inflation RISES as cost of living in UK increases amid interest rate fears – what it means for you
UK inflation has risen for the second month in a row, taking it further above the Bank of England target.
Inflation rose to 2.6% in the 12 months to November 2024, up from the 2.3% that was recorded in October. It marks the highest rate of inflation since March this year – and it comes just one day before the Bank of England announces its latest interest rates decision.
The base rate is widely expected to be paused at 4.75% tomorrow, partly due to a jump in wage growth that was confirmed this week. At its highest point, interest rates were at 5.25%. The Bank of England – which has a target of 2% inflation – had previously been raising interest rates to bring down inflation.
The Office for National Statistics (ONS) releases inflation data every month and blamed the latest increase on rising fuel and clothing prices. The rate of CPI inflation for food and non-alcoholic drinks, alcohol and tobacco, clothing and footwear also edged higher last month.
But the ONS said these rises were "partially offset" by the largest fall in air fares since records began. Core inflation – which excludes energy, food, alcohol and tobacco, and is closely watching by the Bank of England – rose from 3.3% to 3.5%.
Inflation had been steadily coming down in recent months and fell to 1.7% in September, its lowest level in three years. It started to rise again in October, after energy bills rose due to a change in the Ofgem price cap. Economists had expected inflation to rise again in November.
Grant Fitzner, chief economist at the ONS, said: "Inflation rose again this month as prices of motor fuel and clothing increased this year but fell a year ago. This was partially offset by air fares, which traditionally dip at this time of year, but saw their largest drop in November since records began at the start of the century."
Chancellor Rachel Reeves said: “I know families are still struggling with the cost of living and today’s figures are a reminder that for too long the economy has not worked for working people. I am fighting to put more money in the pockets of working people. That’s why at the Budget we protected their payslips with no rise in their national insurance, income tax or VAT, boosted the national living wage by £1,400 and froze fuel duty.“
Shadow Chancellor Mel Stride said: “The Chancellor has made a series of irresponsible and inflationary decisions which, as the independent Office for Budget Responsibility said, will leave inflation higher than it was forecasted in March. These figures mean higher costs in the shops, less money in working people’s pockets and risks keeping mortgage rates higher for longer. Working people cannot afford Labour.”
What is inflation?
Inflation shows how the price of goods and services has changed over time, with the Consumer Price Index (CPI) being the primary measure of inflation. The ONS tracks a regularly updated "basket of goods" and services that represents what households are buying. However, the main CPI figure you see in headlines is used to represent an average.
This means the individual prices of some goods may be higher or lower than this main figure. When inflation is lower, it does not mean prices have stopped rising – it just means they're going up at a slightly slower rate than before. For example, the rate of inflation is now at 2% – so this means an item that cost £1 last year would now cost £1.02.
How is inflation linked to interest rates?
The Bank of England increased interest rates over the course of almost two years to try and lower inflation. The base rate influences the interest rate you're offered by banks and lenders – so when it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere. When people spend less money, this brings down demand and lower prices, which should then lower inflation.
But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021. It reached a peak of 5.25% in August 2023. It was finally cut to 5% in August 2024, with a further cut to 4.75% confirmed in November 2024. The next base rate decision is due on December 19.
Why did inflation peak?
Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food. Demand for energy increased after Covid and then this was exasperated by the Russian invasion of Ukraine. The war also pushed up food prices, due to rising costs for fertilisers and animal feed. Both energy and food price rises have come down in recent months, although they are still higher than before.
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