UK inflation fell more than expected in November, dropping to 3.9% from 4.6% in October, its lowest level in more than two years, according to official figures released Wednesday.
Sharp Decline in Consumer Prices Index
The Office for National Statistics said the Consumer Prices Index (CPI) rose by 3.9% in the 12 months to November, down from 4.6% in October. The decline was larger than anticipated by economists, who had forecast a reading of 4.4%.
Drivers of the Fall
The biggest downward contributions came from transport, particularly motor fuels, and food and non-alcoholic beverages. Petrol prices fell by 7.8 pence per litre between October and November, compared with a rise of 0.5 pence a year earlier. Food inflation eased to 9.2% from 10.1%.
Core inflation, which excludes volatile energy, food, alcohol, and tobacco, also fell to 5.1% from 5.7%.
Impact on Households and the Economy
The decline provides some relief for households that have been grappling with a cost-of-living crisis. However, prices remain significantly higher than two years ago, and many families continue to struggle with the rising cost of essentials.
The Bank of England has raised interest rates 14 times since December 2021 to combat inflation, taking them to 5.25%, the highest in 15 years. The drop in inflation may reduce pressure for further rate hikes.
Market Reaction and Future Outlook
Sterling fell against the dollar following the data release, as traders increased bets on interest rate cuts next year. The yield on two-year government bonds dropped to its lowest since May.
Chancellor Jeremy Hunt welcomed the figures, saying: "The plan is working. We have inflation falling, wages rising, and mortgage rates coming down." However, Labour's shadow chancellor Rachel Reeves noted that "prices are still high and families are worse off."
Economists expect inflation to continue falling in 2024, possibly reaching the Bank of England's 2% target by the spring. But risks remain, including geopolitical tensions and potential upward pressure from energy prices.
