UK inflation hits 3.1 per cent

Caitlin Morrison
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Mark Carney must now write to the Treasury (Source: Getty)

Inflation hit 3.1 per cent in November, meaning Bank of England (BoE) governor Mark Carney must write to the Treasury with an explanation for the rise.

November’s consumer price index (CPI) reading was expected to remain unchanged at three per cent for the third month in a row. CPI has been above the Bank of England’s two per cent target for the last 10 months.

When inflation rises to 3.1 per cent, or falls below one per cent, the BoE chief is required to write a formal letter to the chancellor.

"Today’s number won’t help persuade investors that inflation has peaked, despite the recent recovery in sterling," said GKFX senior market strategist David Morrison.

"In contrast to both the US and Euro zone where inflationary pressures are tepid, UK inflation has been picking up steadily over the last couple of years. On the face of it this puts the UK in quite an enviable position.

"However, much of the recent increase is down to sterling weakness in the wake of 2016’s Brexit referendum and is therefore seen as transitory. In addition, wage growth has failed to keep pace with price rises meaning that UK workers are seeing their spending power diminish."

The largest upward contribution to change in the CPI rate came from transport, according to the Office for National Statistics (ONS), where prices rose by 0.1 per cent between October and November this year compared with a fall of 0.3 per cent between the same two months a year ago. The contribution came principally from air fares, which fell by 10.4% this year compared with a larger fall of 13.4% a year ago.

"Recreation and culture also had an upward effect, with prices of games, toys and hobbies rising between October and November this year by more than a year ago. This effect came from computer games whose prices are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month," the ONS said.

"Within the broader recreation and culture category, there was a small offsetting downward effect from data processing equipment, with prices falling this year but rising in 2016, particularly for PC peripherals.

"The upward contributions were partially offset by a downward effect from miscellaneous goods and services, where prices fell by 0.1 per cent this year compared with a rise of 0.2 per cent a year ago."

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