Energy bills fuel surprise UK inflation rise

Rising energy bills and transport costs fuelled a surprise hike in inflation in Britain today – increasing the chances of another interest rate rise there.

The annual rate of Consumer Prices Inflation (CPI) rose by 0.3% to 1.5% – its highest level in five months – after gas, electricity and other fuel prices grew at their fastest pace since 1997.

Experts said the Office for National Statistics (ONS) data would “undoubtedly revive inflation jitters” and the Bank of England would now wait to see whether these levels are sustained.

Economist Jonathan Loynes at Capital Economics said only energy prices were preventing Bank of England governor Mervyn King having to write to the Chancellor to explain why inflation was below the Government’s 2% target.

Household energy bills grew faster due to significant increases in gas and electricity tariffs by major suppliers in September. This was expected to continue into December and January.

A major factor in the rise in transport prices was higher air fares, as seasonal reductions were weaker than a year earlier. Economists were not too alarmed by this, as fares are often volatile from month to month.

Analysts were surprised by the extent of the increase in petrol prices given the recent competition at the pumps.

While the Bank of England expects inflation to pick up next year, the recent low rate has helped keep interest rates on hold at 4.75% for the last four months.

John Butler, economist at HSBC, said that while inflation was still low, the rise should prompt “severe question marks” over the view that a rate reduction may be on the cards.

But David Page, economist at stockbroker Investec Securities, said the Bank would wait to see whether inflation remains at this level next month.

He added: “I would be surprised if it jumped this much and stayed there. I don’t think the Bank of England are going to get too worried too soon.”

The ONS said stronger price increases were also recorded for food, especially some fruits, and household textiles.

Prices of foreign holidays also rose in November, having fallen the same time last year.

The CPI differs from the old measure Retail Price Index (RPI) because of the absence of housing and council tax costs. Today’s figures showed that headline RPI rose by 0.1% to 3.4%.