Inflation eased to 10.7% from 11.1% last month, suggesting that it may have peaked, reducing pressure for aggressive interest rate rises.

Falling oil prices pushing down the cost of fuel at the pumps led the decline in the core consumer prices index (CPI) measure, which came in lower than economists had expected.

There was also a slight recovery in the value of the pound against the dollar on which oil costs are pegged.

The Office for National Statistics (ONS) said the largest upwards contribution to the inflation number last month came from rising prices in restaurants, cafes and pubs.

Despite the fall, the cost of living crisis shows few signs of easing and record energy bills remain the main drivers of inflation.

Chancellor Jeremy Hunt, said: “Getting inflation down so people’s wages go further is my top priority, which is why are holding down energy bills this winter through our Energy Price Guarantee Scheme and implementing a plan to help halve inflation next year.

“I know it is tough for many right now, but it is vital that we take the tough decisions needed to tackle inflation – the number one enemy that makes everyone poorer. If we make the wrong choices now, high prices will persist and prolong the pain for millions.”

British Chambers of Commerce head of research, David Bharier, said:    “Today’s inflation rate of 10.7% may indicate we have passed the peak, but prices are now at a much higher level which will be felt for months to come. 

“With their margins left razor-thin, very few SMEs are planning to increase investment as they deal with a wall ofhigher energy bills, input costs, interest rates and taxation.   

“Over half of SMEs tell us they will struggle to pay their electricity and gas bills after April. They will be nervously awaiting the Government’s expected announcement on the future shape and extent of any energy costs support, which will also impact inflation. 

“Firms also need to see concrete action on infrastructure, skills, trade, and green tech to create the right environment to invest.” 

The Bank of England is widely expected to raise the interest rate again on Thursday, probably by 50 basis points.

The UK inflation figure followed data from the US showing a similar easing in prices, raising hopes that the Federal Reserve could soften its aggressive stance on interest rate rises, starting with its latest decision today.

Consumer prices increased by 7.1% on an annual basis in November, while the core rate, which excludes volatile food and energy prices, climbed 6%, according to the latest data from the US Department of Labor. Economists were expecting a 7.3% rise in headline inflation.