Retail inflation zooms to 4.88% in November on high food prices

Posted December 12, 2017

United Kingdom shares were flat on Tuesday as investors await inflation figures, which some economists believe could show prices rising at their fastest rate since 2012, putting pressure on the Bank of England to further raise rates.

According to ONS head of inflation Mike Prestwood, "CPI inflation edged above 3 per cent for the first time in almost six years with the price of computer games rising and air fares falling more slowly than this time last year".

The infrastructure group said its performance in 2017 remains in line with board expectations.

The November CPI food inflation increased marginally to 4.42% as against 1.90% in October.

Food price inflation (combined) stood at 4.42 per cent in November 2017 against 1.90 per cent in October and 2.03 per cent in November 2016.

The figure was the highest level on record since March 2012 and will force Bank of England Governor Mark Carney to write a letter to the Chancellor explaining why price growth is so far above the BoE's 2% target.

Rising prices for a range of recreational and cultural goods and services, most notably computer games, also had an upward effect.

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He points out that school fees have risen 553 per cent over the last 25 years compared to 201 per cent for consumer prices and 217 per cent for wages.

"That means that further interest rate rises are definitely not off the table".

That, in turn, could prompt the Bank of England to raise interest rates again next year - not ideal for the economy when it is struggling with the uncertainties of Brexit and real household incomes are falling as price rises outstrip wage increases.

Analysts said inflation was likely to remain above 4% in 2018, dashing hopes for any rate cut.

Lucy O'Carroll, chief economist at Aberdeen Standard Investments, said: "It's quite possible that inflation is now close to its peak".

Sterling spiked back toward the $1.34 mark and United Kingdom 10-year Government bond yields rose a couple of basis points to 1.22 per cent suggesting markets anticipate further interest rate rises. Given how dominant services are in the economy, this could feed through to inflation overall.