Commenting Kate Smith, Head of Pensions at Aegon said:“The consensus was that inflation had peaked so today’s figures are about as welcome as a burst water pipe.
“This year household finances have been under far more pressure from the rising cost of living than in any recent years, driven by the fall in the value of sterling. The news that we’ve not yet turned a corner means that people’s incomes are effectively shrinking. It also means that next year’s increase in auto-enrolment contributions is more likely to prove tricky as many employees will see their pension contributions rise from 1% to 3%. The ongoing rise in living costs increases the likelihood that people will stop saving in response to the squeeze on their incomes. This would provide short-term relief from inflation, but is storing up problems for the long-run.”
Vince Smith-Hughes, retirement expert at Prudential, said: “Rising prices have squeezed the incomes of pensioners and the biggest concern for people living on a fixed income is how much they draw from their pension. Drawing too much from their pension fund too quickly increases the chance that they prematurely exhaust their savings in retirement. Rising energy prices will also alarm pensioners as the cold whether forces them to use more of their income on heating costs.”
Azad Zangana, Schroders’ Senior European Economist: "UK annual Consumer Price Inflation (CPI) rose to 3.1% in November - its highest rate since March 2012, and more significantly, breaching the Bank of England’s (BoE) upper target of 3%. The latest figures were higher than consensus expectations of 3%, with higher food and energy price inflation causing the upside surprise. BoE Governor, Mark Carney, is now due to write a letter to the Chancellor to explain the reason for the overshoot, and what the Bank is doing to correct this.
"The letter will undoubtedly mention the depreciation in sterling since the Brexit referendum, but also higher energy prices recently. The Bank raised interest rates in November, and has hinted that it will do again two more times over the next three years.
"Excluding the volatile energy and food sub-indices, core CPI inflation was unchanged at 2.7%, while the retail price index fell from 4% to 3.9%.
Squeeze on consumers continues
"For the household sector, the rise in inflation will come as a blow ahead of the festive period, especially as wages are failing to keep up with inflation. The 'Black Friday' sales events are barely visible in the data, suggesting less discounting than the hype.
"Looking ahead to 2018, while we do expect some moderation in inflation, in the near-term, the shutdown of the UK North Sea's main pipeline system for emergency repairs has pushed the price of oil significantly higher. This is likely to feed into higher energy and transportation prices over the coming months, extending the squeeze on households."
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