The UK inflation rate hit a 10-year high in November at 5.1%, exceeding analyst predictions and putting inflation at two-and-a-half times higher than the Bank of England target of 2%.
There will be pressure on the BoE monetary policy committee to raise base rates when they meet tomorrow, but the wave of Omicron could counteract this.
Economist had expected inflation for November to rise to around 4.8% from 4.2% the previous month but had not expected it to breach 5% until next spring.
Petrol, cars and raw materials
The rising cost of petrol and second hand cars are major contributors to the inflation hike, reports the FT, with the increasing cost of raw materials feeding into inflationary price rises in other sectors.
Petrol prices jumped to their highest ever level last month and the global shortage of computer chips to build new cars has boosted prices in the used car market, reports the BBC.
A financial health check by the International Monetary Fund has predicted UK inflation would reach around 5.5% early next year - its highest in 30 years, reports the Guardian.
The IMF said that although the UK had dealt well with the pandemic it should not succumb to “inaction bias” and that a contingency mini-furlough may be required.
Tradewinds ahead
It also warned of more trade complexities when new customs checks on imports from the EU are introduced on 1 January.
“Trade with the EU has dropped significantly and we expect there will be more impact ahead as the custom checks [for goods moving from EU to GB] are going to be introduced in the beginning of next year,” said IMF managing director, Kristalina Georgieva.
It predicts the UK economy will grow by 6.8% in 2021 and 5% in 2022 with supply bottlenecks contributing to the high rate of inflation.
Brake on productivity?
As previously covered in the IOE&IT Daily Update, inflationary fears have been increasing this year with supply problems threatening to choke off the UK’s economic recovery.
CBI members reported their lowest ever level of stock adequacy last month, with 69% of firms saying they would raise prices in the next three months.
Shipping giant Maersk has said that high consumer demand will continue to contribute to supply chain disruption, which has seen record profits for shippers and sky-high freight prices.