Two year low

Inflation falls sharply to ease cost of living crisis

Money - own pic
Pressure will ease on the Bank of England (pic: Terry Murden)

Cost of living pressures have eased more sharply than expected with new figures showing inflation slowed to 3.9% in the year to November. Prices are now rising at the lowest rate for two years.

The latest figure is down from 4.6% in October and is a much steeper fall than was forecast. Economists had been predicting 4.3% or, at best, 4%.

It is likely to increase speculation of early interest rate cuts, despite the Bank of England’s insistence that the battle with inflation is not yet over.

Grant Fitzner, chief economist at the Office for National Statistics (ONS), said the biggest driver for November’s inflation fall was a decrease in fuel prices, along with secondhand cars, maintenance and repairs, and lower air fares.

The average price of petrol fell by 4.1 pence per litre between October and November to 151p per litre, down from 163.6p per litre in November 2022. Diesel prices fell by 3.2p per litre this year to 159p, down from 187.9p per litre in November 2022.

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.”

Danni Hewson, head of financial analysis at investment platform AJ Bell, said the new rate “will give markets faith that interest rates will follow the trajectory they’ve already bought into.

“Looking at rate expectation this morning there’s growing confidence cuts to the base rate could begin as early as March and that by this time next year the economic landscape will look very different – more than one in 10 are now betting rates could fall back to below 4% by next December.”

Nicholas Hyett, Investment Analyst, Wealth Club, said it was a “dramatic and unexpected fall” , adding: “While we’re still seeing prices rise faster than the US and Europe, the UK is no longer the outlier it once was. 

“Lower rates of food and drink inflation, cheaper games and toys and lower fuel costs will have been a welcome Christmas miracle for cash strapped families ahead of the festive period, and retailers will welcome a flusher consumer too.

“However, like any Christmas miracle the main character’s actions are only passingly relevant to the outcome. The fall in inflation has been driven largely by lower oil & gas and food prices, with core inflation still high at 5.1%.

“Commodity prices aren’t something governments or even central banks have much control over – and until core inflation (reflecting things like domestic pay rises) is back closer to target we suspect the Bank of England will remain cautious on interest rates.

“Still, with inflation now at its lowest level in over two years, it feels like the worst may now be behind us. Unless and until the febrile geopolitical environment sends oil prices soaring once again of course . . .”

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