Table of Contents:
A worrying increase in inflation
Inflation in the United Kingdom reached its highest in eight months, with an annual increase of 2.6% in November, exceeding the 2% target set by the Bank of England (BOE). This increase was mainly influenced by fuel and clothing costs, creating concerns among economists about the country’s economic stability.
Initial expectations indicated a CPI (Consumer Price Index) of 2.6%, but the BOE had expected a smaller increase, reaching 2.4%.
Market reactions and future forecasts
The pound showed relative stability, remaining around $1.27 after the report was published. However, economists are concerned about a possible more significant increase in the CPI, especially considering that wage growth has shown signs of accelerating for the first time in more than a year. This scenario could further complicate the economic situation, already influenced by a drop in airline ticket prices, which has helped to contain inflation
.
The challenges of stagflation
A critical aspect to consider is service inflation, which remains stubbornly high at 5%, exceeding the BOE’s expectations, which expected 4.9%. This situation fuels fears of stagflation, characterized by high inflation and low economic growth, a phenomenon that could represent a serious challenge for the Labor government of Keir Starmer, which has promised to improve living standards in the
country.
The decisions of the Bank of England
The BOE is expected to keep interest rates unchanged at 4.75% during its next meeting, with the intention of reducing them cautiously over the next year. However, traders have revised their expectations, abandoning the idea of three rate cuts in 2025, now expecting only two full reductions. This change reflects the growing awareness of the inflationary risks, both internal and external, that the UK faces
.
