Inflation rise in UK – what does it mean for me?

Inflation in Britain has risen for the second month in a row, with prices rising at the fastest pace since March.

The main measure of inflation – looking at how much prices have risen over the past 12 months – increased by 2.6%,

This is far below its peak during the cost of living crisis. In 2022, inflation rose to 11.2% as demand for oil and gas was higher following the Covid pandemic, and energy prices rose again when Russia invaded Ukraine.

But inflation had fallen to 1.7% in September this year – its lowest level in more than three years – but is now rising again.

The Office for National Statistics, which calculates the inflation rate, has highlighted the rising cost of petrol and diesel as one of the major reasons behind the latest inflation rise.

Their prices increased after the Chancellor increased taxes on tobacco products in the Budget. The prices of clothes, shoes and electronic games are also high.

But in general the prices of services such as theater and concert tickets, education and health rose faster than those of goods.

Housing costs including rents, which are calculated under a separate headline figure, rose sharply in the year to November – by 7.8%.

But November saw the biggest drop in air travel prices since the turn of the century.

Prices are almost always increasing slightly; About 2% per year is considered a healthy rate of inflation.

There is much less risk that people are delaying purchases because they may be cheaper. A little inflation encourages you to buy quickly – and that boosts economic growth.

But the Bank of England currently estimates inflation will rise to 2.75% in the second half of next year before falling again.

The government’s official forecasting body, the Office for Budget Responsibility, expects similar growth. It said policies announced in the recent Budget – including employers passing on higher cost burdens from National Insurance and minimum wage increases – would help lift inflation.

No one is currently predicting another big burst of inflation, but given all the factors that could influence prices, from incoming US President Donald Trump’s trade policies to the mood of shoppers on the high street, are difficult to predict future prices.

Average wages are now rising faster than prices, which helps ease the pressure, but of course prices for most things remain much higher than they were a few years ago.

Housing costs, whether rent or mortgage, are a particularly major source of financial stress for many people.

Even if the inflation rate decreases next year, it does not mean that prices will fall. They will grow more slowly, making most things more expensive than before.

On Thursday, the interest rate-setting committee of the Bank of England will meet to discuss whether to cut rates or not.

They are not expected to bring rates down from the current 4.75%.

This is because higher interest rates help keep inflation under control by reducing borrowing and spending. If borrowing becomes cheaper, people are likely to have more money to spend, which means prices will rise faster.

So the higher inflation data, added to the news earlier in the week that wages are rising faster than before, will give them even more reason to wait.

Investors are considering a rate cut next year, but expect it to come at a slower pace than a few months ago.