Inflation breaches 3.0% in November 2017
UK inflation reached 3.1% in November 2017 as prices rose at their fastest rate for more than 5 years. Housing and household services have remained the biggest contributor between 2016 and 2017 but it is food and non-alcoholic beverages and transport that have served as important determinants of the change in inflation. UK inflation is now well above the average inflation rates for other European member states.
Prices of food and non-alcoholic beverages in 2016 negatively contributed to overall inflation in November 2016 by 0.21% but as inflation in this category has increased prices by 4.2% in November 2017, the data shows a 0.60% increase in the contribution to the overall inflation rate. Transport prices have also been on the rise throughout 2017 as motor fuel prices have increased following the rise in global oil prices coupled with the fall in the value of sterling. In addition, air fares have been a key determinant as prices fell by a lower amount of 10.4% this year compared to 13.4% a year ago.
The Governor of the Bank of England, Mark Carney, is required to write a letter to Chancellor of the Exchequer Philip Hammond to explain why inflation has exceeded the 2% target by more than 1%, the first time the Bank of England has been required to do so since February 2012. It is likely that Governor Carney will explain inflation as the clearest economic impact of the June 2016 vote to leave the European Union, which marked a significant decline in the value of sterling relative to the country's main trading partners that has resulted in higher import costs that have gradually fed their way into consumer prices.
It is anticipated that the pass-through effect of the depreciation of sterling will fade as we enter 2018. Many economists have indicated that many retailers will have already passed on the costs to consumers such that the year-on-year upward adjustments will reduce as we move through the coming year. Despite this, many families are continuing to feel the squeeze with rising prices in essential items such as food, electricity and transport. Compared to one year ago, food prices are 4.4% higher while heating and lighting costs are 6.4% higher. Seasonal toys are also 6.1% more expensive compared to Christmas of last year.
The Monetary Policy Committee meet this week with a decision on the future of interest rates expected to be announced tomorrow. While it is reported that committee members are surprised by the rise of inflation yet further in November, the market is not expecting a rate rise to be announced only six weeks after the first rise in over a decade.
We will keep you updated as and when we learn more. Should you wish to discuss how to get the most from your savings in an inflationary environment, do give us a call on 0191 481 3777 and we'll be happy to assist.