U.K. Inflation Accelerates at Fastest Pace in a Decade

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LONDON—Inflation in the U.K. accelerated in November to its fastest annual rate in more than a decade, propelled by supply-chain disruptions and higher energy costs that are pushing up consumer prices across many advanced economies.

The pickup in inflation will test the Bank of England, which is juggling the risk of a sustained bout of price-growth against renewed economic uncertainty caused by the Omicron variant of coronavirus. Officials are expected to keep their benchmark interest rate on hold when they announce their latest policy decision Thursday, but most economists expect a rate increase early in 2022.

In the U.S., Federal Reserve officials are meeting this week for the first time since Chairman

Jerome Powell

said last month that the central bank needed to shift its focus toward preventing higher inflation from becoming entrenched and away from fostering a rapid rebound in hiring from the pandemic.

Fed officials are poised to quicken the wind down of their bond-buying stimulus program this week because they want to conclude it before raising interest rates. They have signaled they are likely to end it by March instead of June, which would allow them to raise rates sooner, possibly in the first half of next year. U.S. inflation reached 6.8% in November, the fastest annual rate since 1982.

As the cost of groceries, clothing and electronics have gone up in the U.S., prices in Japan have stayed low. WSJ’s Peter Landers goes shopping in Tokyo to explain why steady prices, though good for your wallet, can be a sign of a slow-growing economy. Photo: Richard B. Levine/Zuma Press; Kim Kyung Hoon/Reuters

Consumer prices in the U.K. rose 5.1% in November compared with a year earlier, the Office for National Statistics said Wednesday, the biggest annual jump since Sept. 2011.

Economists polled by The Wall Street Journal had expected prices to rise by an annual 4.9%.

Inflation now stands at more than twice the BOE’s 2% target. Officials at the central bank say they expect inflationary pressures to ease over time as the global economy recovers and supply-chain kinks work themselves out. In November, officials signaled they expected to begin gently raising borrowing costs soon to keep price-growth in check.

But Omicron, which is spreading rapidly in Britain, risks upsetting the country’s economic recovery, which had been slowing already, as new public-health restrictions to stem its spread come into force.

The variant might in the coming months add to inflationary pressure by causing fresh disruption to global supply chains, economists say. Incoming data should give officials a clearer view of the new variant’s economic effects.

The pickup in inflation “gives the Bank enough ammunition to raise interest rates tomorrow, but we still think it is more likely to keep its powder dry until it knows more about the Omicron situation,”

Paul Dales,

chief U.K. economist at Capital Economics, said in a note to clients Wednesday.

The surge in inflation in November was driven by higher prices for clothing, food and gasoline.

Producer prices also rose steeply, suggesting inflationary pressure ahead. Prices charged by companies at the factory gate rose 9.1% on the year, data showed, while the prices manufacturers paid for raw materials and components rose 14.3%.

As of Tuesday, the U.K. had identified 5,346 cases of Omicron, up 633 on the day before. Officials believe cases are doubling every two to three days and total infections could reach 1 million a day by the end of the year by some projections and without mitigations.

Write to Jason Douglas at [email protected]

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