Inflation predicted to rise

Hargreaves Lansdown has predicted that inflation is likely to rise slightly when figures are released next week.

Inflation is also expected to remain above target for a while yet with investors putting the chances of a rate cut at just 12% next week.

Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown said “Inflation looks likely to have bubbled up again in November, dashing hopes that more heat will be taken out of borrowing costs. The CPI reading looks set to veer further away from the Bank of England’s target and come in around 2.6%, up from 2.3% in October.

“Higher tobacco duties and energy bills will be taking a toll. Our desire for travel has been sending airfares soaring, and with grocery price inflation also heading upwards again, policymakers are once again having to deal with a hotter mess of prices.

“However, some of these effects had already been forecast by the Bank of England, and so they may not move the dial too much in terms of interest rate expectations. The Bank has already said it’s less concerned about inflation driven by external factors, and more focused on whether it feeds into more domestically-powered inflation – through higher wages.

“It’s still unclear if the higher National Insurance employer contributions announced in the Budget will show up in lower pay growth, or higher prices charged to consumers. The impact of Trump’s planned tariffs, will also be watched closely. Although a stronger dollar could push up the cost of imports, there’s a chance that global manufacturers could cut prices to stay competitive.

“There’s a lot of ‘what ifs’ around right now, so it won’t be at all surprising if the Bank sits on its hands next week and adopts a ‘wait and see’ approach. This is reflected in financial markets’ expectations, with an 88% probability of no change to the base rate next week being factored in.”