Inflation Holds Steady At 2.1%
A collective sigh of relief was heaved across economic Britain as the inflation rate was announced on Tuesday at an annual rate of 2.1% for November, the same rate as for October.
Despite petrol costs busting the £1 a litre barrier in the month, official figures showed that the cost of living remained steady. This was surprisingly good news for the Bank of England which has fought hard to keep inflation under control, but expectations were for the consumer prices index (CPI) to continue its upward climb from a low of 1.8% in both August and September.
The soaring price of oil - getting close to $100 a barrel - and the knock-on price rise of petrol at the pumps by 3.5p a litre was expected to push inflation to higher levels. Economists had forecast a rate of 2.2% for November, but the official figure from the Office for National Statistics showed that the measure was still only just above the Bank's target of 2%.
A rise in CPI would have given the Bank cause to think after it cut the base rate to 5.5% in December. The unchanged inflation rate may give the Bank leeway to make further cuts in the base rate in early 2008.
As well as rises in oil and petrol prices there has been a rise in the cost of food with bread, pastries and cake products going up nearly 4%, and the overall annual food inflation rate going up to its highest for 14 years. However, there was a fall in the price of vegetables - which had risen in the previous year - and that was enough to offset the rise of items such as milk, cheese and bread in November, according to the ONS.
A year ago there had been a rise in the price of gas and electricity, but recently these have been more stable, following some reduction earlier in the year, and this has kept prices under control.
Times have been tough on the high street and there have been some price cuts ahead of Christmas as retailers attempt to attract custom on such items as digital cameras and laptops.
The retail prices index (RPI), which includes mortgage payments in its calculations, was slightly up in November - by 0.1%, to 4.3%.
Chief European economist at Capital Economics Jonathan Loynes, thought that the inflation data was an 'encouraging signal' for the Bank of England's Monetary Policy Committee (MPC), which sets interest rates.
He said: "November's figures confirm that the UK is suffering relatively lightly from the latest rise in oil and energy prices. There are still worries over rising cost pressures and the high levels of inflation expectations amongst both households and firms. But with growing signs that activity is slowing, it seems likely that these concerns will fade in time.
"Overall [it is] an encouraging signal that inflation pressures will not prevent the MPC from responding to the weakening outlook for the economy by cutting interest rates further."
Published on December 20, 2007
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