Inflation rate unchanged at 2.7%

 

The UK's rate of inflation was unchanged today but there are fears the respite may only be brief as energy prices continue to rise.

The Office for National Statistics said the Consumer Prices Index (CPI) was 2.7% in November, with higher food costs and the first energy price hike by supplier SSE offset by a fall in fuel prices.

But with hikes by the other five energy providers set to come into force, analysts think CPI inflation will peak at 3.5% by mid-2013.

The ONS said upward pressure from gas and electricity prices pushed housing and household services inflation up by 0.6%.

But November's figures do not account for price rises by the remaining five of the "big six" energy providers which have imposed, or are set to impose, price increases of between 6% and 10.8%.

Increases in the price of fruit, bread and cereals also pushed up the CPI rate, the ONS said.

But a fall in the cost of transport was the biggest factor which kept the rate of inflation down.

Petrol prices fell by 3p to £1.35 per litre, while diesel dropped 1.5p to £1.42 per litre in November, the ONS said.

Today's figures also show that the rate of the Retail Prices Index (RPI), which includes housing costs, fell to 3% in November, down from 3.2% in October as transport costs and mortgage interest payments fell.

Steady inflation will be a relief for policymakers after a shock jump in October.

The rate increased to 2.7% from a three-year low of 2.2% in September.

Any increase in inflation would fuel speculation that the Bank of England will hold off from taking further action under its economy-boosting quantitative easing (QE) programme.

A Treasury spokeswoman said: "Inflation is nearly half of the 5.2% peak it reached last year.

"At the Autumn Statement, the Government took more action to help households with the cost of living including a further increase in the tax-free personal allowance and cancelling the fuel duty increase that was planned for January."

Samuel Tombs, an analyst at Capital Economics, said inflation looked set to hover between 2.5% and 3% for the best part of the next year, as further increases in utility and food prices kick in.

And with annual growth in average earnings at 1.3% in October, it means the squeeze on households' spending power will persist throughout 2013.

However, he added: "We have not lost faith in our view that the large amount of spare capacity in the economy will mean that inflation will eventually fall to a very low rate."

Unison general secretary Dave Prentis said the latest figures were the "lull before the storm".

He said: "Big increases in energy prices are set to hit in the new year and the cost of feeding a family just keeps on going up.

"More than a million public sector workers have not had a pay rise for three years and the value of their take home pay just keeps on going down," he added.

TUC general secretary Brendan Barber said the stubbornness of inflation, combined with poor wage growth, was putting real pressure on people's finances in the run up to Christmas.

PA

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