Inflation hit a two-year high last month, according to the latest figures from the Office for National Statistics.
Consumer prices were 1.2 per cent higher in November 2016 than a year ago — the highest rate of inflation since an annual 1.3 per cent rise in October 2014.
In October this year, the annual rate was 0.9 per cent. Analysts had expected a figure of 1.1 per cent for November.
Economists have forecast that the depreciation of the pound following the EU referendum will eventually lead to higher consumer prices as businesses pass on higher import costs.
Inflation is higher partly because last year’s fall in the oil price has dropped out of the figures. Rising transport costs were the biggest contributor to rising prices in November.
Mike Prestwood of the ONS said: “November’s slight rally in the value of sterling eased the inflationary pressure on businesses importing raw materials but consumer prices continued to edge upwards, due mainly to the rising cost of clothing and fuel.”
Food prices have continued to fall, but for the first time since mid-2014 all other categories tracked by the ONS contributed to the rise.
Factory gate prices, charged by manufacturers for their finished products, increased 2.3 per cent. Manufacturing input prices climbed 12.9 per cent, mainly driven by the rising cost of petrol.
Additional ONS analysis of the figures found that imported materials contributed 7.8 percentage points of the increase in input prices. The depreciation of sterling has also caused steeper rises in fuel costs, because oil is priced in dollars.
“The latest data are likely to underscore concerns that the UK inflation cycle is now turning higher,” said Adam Chester, head of economics at Lloyds Bank.
“The sharp fall in the pound is only just starting to find its way through to consumer prices, while the recent surge in the price of oil suggests further petrol price rises are in the pipeline,” he said.
The data point to the problem the Bank of England must try to tackle of rising inflation combined with slower economic growth. If the UK central bank raises the main interest rate, this could help support the pound and reduce inflation but could also stifle growth.
BoE governor Mark Carney has said the bank is willing to accept a period of higher inflation “in exchange for a more modest increase in unemployment”.
Matt Whittaker, chief economist of the Resolution Foundation think-tank, said: “This time last year, consumers were benefiting from ultra-low inflation and real wage growth in line with the pre-crisis average. But rising inflation has been eating into that growth over the past year, with nominal pay increases anchored at just over 2 per cent.”
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