The UK inflation rate has gone up to 2.6 per cent in November, rising for the second month in a row and increasing at the fastest pace since mid-2022.
A hike in tobacco duty and petrol prices are thought to be the key factors for the rise, alongside higher prices for clothing and event tickets.
In September, the rate dropped below the Bank’s 2 per cent target, to 1.7 per cent, for the first time since April 2021. It then spiked to 2.3 per cent in October and now rises again.
The consecutive rises mark the fastest growth rate for inflation since mid-2022, when the figure peaked at a record 11.1 per cent during the Covid pandemic, causing a nationwide cost of living crisis.
Grant Fitzner, chief economist at the Office for National Statistics (ONS), said: “Inflation rose again this month as prices of motor fuel and clothing increased this year but fell a year ago.”
“This was partially offset by air fares, which traditionally dip at this time of year, but saw their largest drop in November since records began at the start of the century.”
Here’s what the latest rise in inflation could mean for you and your money:
How does the inflation increase affect my mortgage?
Mortgage rates typically follow the Bank of England’s base interest rate, which the Bank had begun to lower in recent months in response to declining inflation.
The Bank will typically raise the rate to try and curb rising inflation, as it did during the Covid pandemic when it grew from 0.1 per cent to 5.25 per cent over the course of 18 months.
But a higher rate leads to higher mortage rates on the market. Lenders had already started to cut rates following the Bank’s base rate dropping to 4.75 per cent in November.
Most economists now predict this will remain the same when the Bank announces its latest rate decision on Thursday. However, if inflation continues to rise at the rate of the last two months, then its likely the Bank will look to raise its rate once again to combat the growth.
How does the inflation increase affect pensions and benefits?
For those who take home a state pension, inflation can affect how much it goes up or down every year. The Triple Lock rule ensures that pensions will rise in line with either inflation, average earnings or by 2.5 per cent, depending on which is highest.
The State Pension will rise by 4.1 per cent in April 2025 – up £472 a year – in line with wage growth in 2024.
Changes in inflation don’t directly affect private pensions but will change their relative value. If savings grow at a slower rate than inflation, the relative spending power of a pension will decrease.
Also from April 2025, all working-age benefits will increase by 1.7 per cent, in line with September’s inflation figure. While this is not unusual, campaigners had called for Labour to consider a slightly higher increase as inflation has continued to grow higher since September.
How does the inflation increase affect food prices?
While the headline inflation figure, Consumer Price Index (CPI), has gone up, this is not the only number that matters. Food price inflation is also measured, and saw a slight increase from 1.9 per cent to 2 per cent in November.
This marks a slow creep back up from earlier in the year, with food price inflation reaching a low of 1.3 per cent in August. However, it is still lower than the start of the year, when the figure stood at 7 per cent – good news for those buying Christmas dinner soon.
Are you affected by the inflation increase or have a story to share about the cost of living in the UK? Get in touch via email: [email protected]
