UK inflation tops 5%, fastest in a decade

UK inflation jumped more than expected to its highest level in more than a decade in November, adding pressure on the Bank of England to raise interest rates.

Consumer prices rose 5.1% from a year earlier, the highest since September 2011, boosted by the cost of clothing, gasoline and used cars. Core inflation, which excludes energy and other volatile items, rose to 4%, the highest since 1992.

The headline inflation rate increased from 4.2% in October. It rose 3.1 percentage points in just four months, the fastest gain ever.

The reading will present a challenge for policymakers at the BOE, who are also weighing the risks of the novel coronavirus variant to the economy. The central bank was expected to raise its borrowing costs on Thursday, but the emergence of Omicron has led to speculation that a decision will now be postponed until New Year.

The pound rose briefly after the data, before giving up gains to trade 0.1% higher at $1.3248 at 7:42 a.m. London. Money markets kept bets on the BOE’s rate hike, betting that concerns over Omicron will prompt policymakers to hold rates on Thursday. They see the central bank raising rates in February.

The reading will be “uncomfortably high for the MPC, but Omicron requires a bit more patience,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Still, the jump above 5% comes much sooner than expected by the BOE, with officials predicting only that the metric would peak around that level early next year.

About Tammy N. McFarlane

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