US Edition
Falling fuel prices and easing food costs helped inflation drop faster than expected in November, raising hopes of interest rate cuts next year.
Prices, as measured by the consumer prices index (CPI) rose 3.9pc in the year to November, according to the Office for National Statistics (ONS).
This is down from 4.6pc in October and well below analysts’ expectations of a fall to 4.3pc.
It is also the first time the reading has been below 4pc since September 2021, which will likely fuel a new wave of cheaper mortgage deals in the New Year.
Falling inflation and a signal by the US Federal Reserve that rates are likely to come down next year have cemented bets that the Bank of England will cut interest rates from 5.25pc today to 4pc by the end of 2024.
However, economists have warned that attacks by Houthi rebels on commercial ships in the Red Sea could also push up the price of petrol and other goods, keeping inflation higher for longer.
Grant Fitzner, chief economist at the ONS, described the reading as “good news”, with a broad easing in price rises reflected in “lower inflation across the board”.
While a main driver of the drop in inflation was a reduction in petrol prices, which fell by 4.1p per litre between October and November, Mr Fizner added: “We’ve also seen annual food prices continue to come down, led by cheaper bread and cakes, falling games, live music and other recreation prices, furniture and cheaper second-hand cars.
“So it was a range of factors.”
Measures of inflation that are closely watched by the Bank also fell, which will bolster bets on rate cuts next year, despite warnings from Governor Andrew Bailey that it is too early to consider lower borrowing costs.
Core inflation, which strips out volatile food and energy costs, fell to 5.1pc in November, from 5.7pc, while the CPI services annual rate eased from 6.6pc to 6.3pc.
While all measures remain above the Bank’s 2pc target, Mr Fitzner told the BBC that the declines were significant: “I think [this] would be encouraging to not just to the Bank but other financial commentators out there watching these numbers.”
Responding to the inflation figures, Chancellor Jeremy Hunt said: “With inflation more than halved we are starting to remove inflationary pressures from the economy.
“Alongside the business tax cuts announced in the Autumn Statement this means we are back on the path to healthy, sustainable growth.
“But many families are still struggling with high prices so we will continue to prioritise measures that help with cost of living pressures.”