The cost of living in the UK rose at its fastest pace since 2008 in November, surging 5.1% and adding to Bank of England pressure to raise interest rates.

The Office for National Statistics reported on Wednesday (15 December) that consumer prices increased far faster than analyst predictions of 4.7%, and up from 4.2% in October.

The monthly rate of inflation rose 0.7%, compared with a fall of 0.1% in the same month the previous year.

The ONS attributed the rise in inflation to transport, housing and household services.

‘With life bustling along in a rather normal fashion last month it’s not surprising to find transport costs, clothing and footwear played a big part,’ said Danni Hewson, financial analyst at investment platform AJ Bell. ‘Think about how much we’re paying at the pump compared to a year ago. Then consider how often we actually filled up a year ago.’

2021 RATE HIKE D-DAY

The inflation data is the last reading on consumer prices that Bank of England policymakers will receive before their final policy meeting of the year on Thursday.

Strength in the labour market and elevated inflation underline the case for higher interest rates. On Tuesday, the latest UK employment report showed that jobs growth remained strong and vacancies stayed at record levels in November.

But renewed fears over the prospect of an economic slowdown from the rapid spread of the Omicron variant mean policymakers are likely to keep rates on hold, according to analysts.

‘Should the Bank of England raise rates tomorrow? Should they have done it 12 months ago because realistically that’s how long the measure takes to make an impact?’ asked AJ Bell’s Hewson rhetorically.

‘Think back to December 2020 and imagine the reaction if the Bank had hiked rates then. Now consider where we are, the analyst said.’

‘There’s no question that prices are too high. There’s no question that if employers start to raise wages substantially that’s just going to add to the problem. There’s no question December 2021 is beginning to look a lot like December 2020 and there’s no question that whatever decision the Bank makes tomorrow it won’t bring a solution for today,’ said Hewson.

Whatever the Bank of England decides on Thursday, investors have been given fair warning to expect inflation to last longer than many predicted a year ago, but there is action they can take.

FOUR INFLATION-BEATING STOCKS

Trade building materials firm Howden Joinery (HWDN) saw a rapid recovery once stores were permitted to reopen thanks to pent-up demand from the repair, maintenance and improvement market. Howden has the confidence to roll out 35 new UK depots this year compared with three last year and 11 new depots in Europe, increasing its network by a third, on top of its refurbishment plans.

Safestore (SAFE) provides low cost, secure storage space for companies and individuals – with demand in this market outstripping supply. Self-storage sites remain relatively easy to make Covid secure, while people have needed to declutter their homes to make space for home working.

The boom in the housing market has increased demand from people who are between properties. On the corporate side the explosion in online retail has driven demand, particularly from smaller operators.

Food producer Tate & Lyle (TATE) is a cash generative, progressive dividend payer with a quality tilt. According to Liberum Capital, the sweeteners-to-ingredients group generates a healthy return on equity of 18%, while results for the year to March 2021 showcased the resilience of the business in the face of the pandemic.

XP Power (XPP) is a specialist electronics engineer, producing critical power equipment solutions for applications which require custom output voltage combinations, unique control or status signals, and specific mechanical packaging for optimal performance.

XP’s high level of research and development spending – on average 12% of revenues per year since 2002 – gives it proprietary intellectual property which few peers can match, making customers and revenues sticky.

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Issue Date: 15 Dec 2021