UK Inflation Spikes to 10-year High of 5.1%

British inflation has rocketed to its highest level for over 10 years on broad-based price gains, data showed on Wednesday, sparking fears that wages will fail to keep pace on the eve of a Bank of England interest rate decision.

The annual inflation rate surged to 5.1 percent in November after 4.2 percent in October, the Office for National Statistics (ONS) said in a statement.

That marked the highest level since September 2011, with inflationary pressures driven by jumping fuel costs as the rate accelerated further above the BoE’s official target.

The news sparked an outcry from Britain’s Unite trade union, which complained many workers faced an effective pay cut with the prospect of below-inflation annual wage increases.

The BoE, whose main task is to keep inflation close to 2.0 percent, is however expected to hold its record-low interest rate on Thursday due to turmoil over the Omicron coronavirus variant.

Central banks normally use interest rate hikes to try to damp high inflation, which is weighing on companies and consumers globally.

– Wide range of price rises –
“A wide range of price rises contributed to another steep rise in inflation, which now stands at its highest rate for over a decade,” said ONS Chief Economist Grant Fitzner.

“The price of fuel increased notably, pushing average petrol prices higher than we have seen before.

“Clothing costs — which increased after falling this time last year — along with price rises for food, second-hand cars and increased tobacco duty all helped drive up inflation this month.”

Inflationary pressures were also fuelled by the global supply crunch and jumping commodity prices.

“The cost of goods produced by factories and the price of raw materials have continued to increase significantly to their highest rate for at least 12 years,” Fitzner added.

After countries emerged from pandemic lockdowns earlier this year, companies struggled to meet demand for goods, energy and services, sending inflation soaring.

However, the BoE will probably hold its key interest rate at 0.1 percent due to Omicron uncertainty, analysts say.

The Unite union meanwhile urged companies to grant pay hikes that preserve the buying power of workers’ salaries.

“Today’s figures mean our members must fight for wage rises above the current rate of inflation,” said Unite general secretary Sharon Graham.

– ‘Hot and bothered’ –

Omicron, which emerged late last month, forced Britain to re-impose coronavirus restrictions that were passed by lawmakers late on Tuesday.

BoE policymakers will also be mindful of news that UK unemployment has fallen again, despite the end of a scheme to keep millions of private-sector workers in their roles during the pandemic.

“Faced with such a high inflation reading, and with forecasts that the only way is up, the Bank of England would ordinarily be expected to call time on the cheap money party and raise interest rates,” said Hargreaves Lansdown analyst Susannah Streeter.

“But with the recovery far from being in full swing and the omicron variant an unruly guest, set to knock back confidence further for many sectors, policymakers may be hot and bothered but are likely to stay in wait-and-see mode tomorrow.”

The UK economy was already struggling prior to the arrival of Omicron, growing by an anaemic 0.1 percent in October from 0.6 percent in September.

The International Monetary Fund warned Tuesday that “new Covid-19 variants pose downside risks to the outlook” for Britain — and urged the government to consider new emergency stimulus measures in the event of fresh lockdowns.

Prime Minister Boris Johnson has warned of a looming “tidal wave” of Omicron that could overwhelm hospitals.

-AFP