UK inflation eased more sharply than expected in November, falling to a ten-month low and increasing the likelihood that the Bank of England will deliver a fourth interest rate cut of the year.
Official figures from the Office for National Statistics (ONS) showed the consumer price index (CPI) rose by 3.2 per cent in the year to November, down from 3.6 per cent in October. The reading was below the Bank of England’s forecast of 3.4 per cent and the 3.5 per cent expected by City economists, marking the lowest inflation rate since March.
Core inflation, which strips out volatile energy and food prices and is closely watched by policymakers, also surprised on the downside, easing from 3.4 per cent to 3.2 per cent. On a monthly basis, prices fell by 0.2 per cent between October and November, signalling a renewed bout of disinflation.
Lower food prices were the biggest driver of the slowdown, according to the ONS. Monthly food prices fell by 0.2 per cent at a time of year when they typically rise, while annual food inflation eased from 4.9 per cent to 4.2 per cent. Inflation for alcohol and tobacco also dropped sharply, from 5.9 per cent to 4 per cent.
Clothing prices provided a further drag on inflation, with annual price growth turning negative at minus 0.6 per cent. This, combined with easing pressure across several consumer categories, helped pull overall inflation lower than anticipated.
Grant Fitzner, chief economist at the ONS, said the fall was broad-based.
“Inflation fell notably in November to its lowest annual rate since March,” he said. “Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall, with decreases seen particularly for cakes, biscuits and breakfast cereals.
“Tobacco prices also helped pull the rate down, with prices easing slightly this month after a large rise a year ago. The fall in the price of women’s clothing was another downward driver.”
The data strengthens expectations that the Bank of England’s monetary policy committee will vote to cut the base rate from 4 per cent to 3.75 per cent at its meeting on Thursday. Economists and traders are forecasting a narrow decision in favour of a cut, following a series of recent indicators pointing to a cooling economy.
Earlier this week, official figures showed unemployment rising and the labour market weakening, while wage growth has continued to slow — developments that reduce inflationary pressure and increase the case for looser monetary policy.
Lower interest rates would provide some relief for households and businesses by easing borrowing costs, at a time when economic growth remains fragile and confidence subdued.
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