Inflation unexpectedly jumped to a near six-year high last month, forcing the Bank of England to explain to the Chancellor how it will tackle Britain’s surging cost of living.
Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) rose to 3.1% in November, up from 3% in October.
It means inflation has climbed to its highest level since March 2012, with economists expecting CPI to hold steady for the third month in a row at 3%.
A rise in in the cost of recreational goods means that Mark Carneyâs letter to the Chancellor will be more expensive to write, following the increase in UK inflation to 3.1% in November.— Philip Shaw (@philipshaw8) December 12, 2017
The outcome spells more misery for households as they face a further squeeze on their finances ahead of the Christmas period.
It also means Bank Governor Mark Carney must pen a letter to Chancellor Philip Hammond – due to be published in February – outlining the reason behind CPI’s rapid rise.
The Government has set a CPI target of 2%, with protocol dictating that the Bank must contact Mr Hammond if inflation exceeds 3% or falls short of 1%.
The move will pose fresh questions to the Bank’s interest rate-setting Monetary Policy Committee (MPC) about whether or not inflation has topped out.
UK CPI inflation up to 3.1% in Nov., one-tenth above the MPC's forecast. Volatile airfares inflation, however, largely to blame for the rise. Inflation remains set to fall sharply next yr as the anniversary of sharp sterling-related price rises is met: pic.twitter.com/f3TVuXDEMD— Samuel Tombs (@samueltombs) December 12, 2017
Lucy O’Carroll, Aberdeen Standard Investments chief economist, said: “It’s quite possible that inflation is now close to its peak.
“But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall.
“That means that further interest rate rises are definitely not off the table.
“The Bank of England has a tricky tightrope to walk. Too much inflation could threaten the Bank’s credibility and therefore its grip on the economy.”
The MPC is expected to keep interest rates on hold when it announces its latest decision on Thursday, after hiking the cost of borrowing to 0.5% last month.
Sterling was up nearly 0.3% versus the US dollar at 1.337 following the CPI announcement, and was higher by around 0.2% against the euro at 1.135.
Mike Prestwood, ONS head of inflation, said: “CPI inflation edged above 3% for the first time in nearly six years with the price of computer games rising and air fares falling more slowly than this time last year.
“These upward pressures were partly offset by falling costs of computer equipment.”
The lion’s share of the rise came from air fares, which recorded a smaller monthly drop in November at 10.4%, compared with a 13.4% fall over the period last year.
Computer games prices were also boosting everyday costs, as games, toys and hobbies lifted 3.7% on an annual basis last month.
Prices also climbed by 2.2% on a monthly basis, compared with 0.7% growth last year.
Food and non-alcoholic drinks prices pushed higher, picking up by 0.6% month on month in contrast to a 0.5% lift for the period in 2016.
Part of the rise came from chocolate prices, with sugar, jam, honey, syrups, chocolate and confectionery up 1.5% on the month after falling by 1.5% for the same period last year.
At the pumps, motorists were also facing higher fuel costs in November, with petrol up by 1.8p per litre month on month to 119.1p.
Diesel also rose by 2.3p a litre to 122.8p.
It comes after crude oil surged by 7.6% between October and November, reaching its highest level since December 2016.
The Retail Prices Index (RPI), a separate measure of inflation, was 3.9% last month, down from 4% the month before.
The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) – the ONS’ preferred measure of inflation – was 2.8% in November, unchanged from October.
Mel Stride, financial secretary to the Treasury, said: “Inflation is expected to fall over the coming year, but I recognise families are feeling a squeeze now.
“We are determined to help, which is why the Autumn Budget cut income tax, boosted basic pay by more than inflation and froze alcohol and fuel duties.”
Liberal Democrat leader Sir Vince Cable said it was the fault of the Government that the price of Christmas had gone up for millions of families.
He added: “Philip Hammond knows why inflation has risen so sharply – it is because the Government is pursuing the most extreme Brexit to take us out of the single market and customs union which has continued to suppress the value of the pound and pushed up prices.”