Inflation eases back sharply to 3.9% in November

UK inflation eased back to its lowest level for more than two years last month as falling petrol prices helped drive a bigger-than-expected fall, official figures show.

The Office for National Statistics (ONS) said the rate of Consumer Prices Index inflation fell to 3.9% in November, down from 4.6% in October, and the lowest level since September 2021.

Most economists had been expecting inflation to fall to 4.3% last month.

Grant Fitzner, chief economist at the ONS, said: “Inflation eased again to its lowest annual rate for over two years, but prices remain substantially above what they were before the invasion of Ukraine.

“The biggest driver for this month’s fall was a decrease in fuel prices after an increase at the same time last year.

“Food prices also pulled down inflation, as they rose much more slowly than this time last year.

“There was also a price drop for a range of household goods and the cost of second-hand cars.”

The further steep fall in inflation comes after the dramatic decline seen in October, when inflation dropped from 6.7% in September, enabling Prime Minister Rishi Sunak to declare an early victory in his goal to halve inflation by the year end.

Cold water

But the Bank of England has been quick to warn that the job of bringing inflation back to its 2% target is far from done and has poured cold water on mounting hopes of an imminent interest rate cut.

The ONS confirmed that the Bank, which held interest rates at 5.25% last week, had not seen the most recent inflation figures before its latest decision.

Chancellor Jeremy Hunt claimed the UK was “back on the path to healthy, sustainable growth” after the big fall in inflation.

Mr 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.”

The pound fell after the inflation figures, down 0.6% at 1.27 US dollars, as the unexpectedly big decline reinforced forecasts for rate cuts in 2024.

Signal

Samuel Tombs at Pantheon Macroeconomics said: “November’s surprisingly sharp fall in CPI inflation reinforces the likelihood that the Monetary Policy Committee will begin to reduce Bank Rate in the first half of 2024, far earlier than it has been prepared to signal so far.”

He is forecasting the headline rate of CPI inflation to reach the Bank’s target of 2% in the second quarter of next year, although the Bank recently said it would take two years for inflation to come back to its goal.

The ONS figures showed that falling prices at the fuel pumps helped bring down the rate of inflation, with the average cost of petrol dropping by 4.1p a litre between October and December, to stand at 151p last month.

Overall motor fuel prices fell by 10.6% in the year to November 2023, compared with a drop of 7.6% in the year to October.

CPI was also pulled lower by a slowdown in the pace of annual food price inflation, which dropped to 9.2% last month, down from 10.1% in October, and the lowest rate since May last year.

Food prices have now fallen for eight months in a row, from an eye-watering more than 45-year high of 19.6% in March, or 19.2% including non-alcoholic drinks, which is providing some much-needed respite for cash-strapped households.

The latest data also showed a decline in the CPI measure of inflation including housing costs (CPIH) to 4.2% in November, down from 4.7% in October, while the Retail Prices Index (RPI) fell back to 5.3% from 6.1%.