UK inflation rate hits eight-month high

The UK inflation rate has surged for the second consecutive month, reaching its highest level since March 2024, according to official data released by the Office for National Statistics (ONS). The Consumer Prices Index (CPI) rose by 2.6% in the year to November 2024, up from 2.3% in October and a more modest 1.7% in September. This upward trend reflects a challenging economic environment as businesses and households grapple with rising costs.

The increase in inflation was driven primarily by transport costs, particularly higher prices for motor fuels and second-hand cars. Petrol and car purchase expenses have seen notable growth, marking transport as the sector with the most significant inflationary impact. Additionally, rising fuel prices and higher clothing costs contributed to the upward momentum.

Entertainment expenses also played a role, with increasing ticket prices for gigs and plays adding pressure to household budgets. In contrast, airfares and dining out showed smaller increases, slightly offsetting the broader inflationary effects.

On a monthly basis, CPI rose by 0.1% in November 2024, a stark contrast to the 0.2% decline recorded in November 2023.

The Bank of England (BoE) is set to meet on Thursday to determine its next interest rate decision. Despite inflation surpassing its forecast of 2.4%, the BoE is widely expected to hold interest rates steady at 4.75%.

Economists predict that the BoE will maintain a cautious approach as inflationary pressures persist. Services inflation—a key measure of domestic price pressure—remained unchanged at 5.0% in November. This stability in services inflation suggests continued strain on the economy from wage growth and domestic cost increases.

“Inflation continues to put a strain on SMEs, especially with elevated input costs and uncertain demand. The journey back to the Bank of England’s 2% target has been arduous, with businesses weathering persistent challenges along the way. 

“Forecasts for 2025 offer some reassurance, with inflation expected to gradually ease, supported by stabilising energy costs and slowing price growth across supply chains. However, SMEs remain concerned about interest rates, which are predicted to come down only modestly in the short term. Lenders will need to remain committed to offering tailored and flexible financial support to help them overcome hurdles and seize opportunities, even in these testing times,” he added.

Scott Douglas, Director of Capital Markets at Centrus, echoed these concerns, emphasising the broader economic risks: “Rising geopolitical tensions and recent events in the Middle East could also cause spikes in commodity and energy prices. Businesses will have to factor in heightened risk, and having a considered hedging strategy in place will be key to dealing with any potential market shocks.”