Shoppers walk past a Regent Street store on the last weekday before Christmas in London, December 22, 2023.
Henry Nichols AFP | Getty Images
Britain’s inflation rate plunged to 3.2% in November, raising the possibility that the Bank of England will cut interest rates at its final board meeting of the year on Thursday.
Economists polled by Reuters had expected inflation to hit 3.5% in the 12 months to November, the lowest annual rate since March and down from 3.6% in October.
Core inflation, which excludes energy, food, alcohol and tobacco, also rose by 3.2% in the year to November, down from 3.4% in October, according to the latest figures from the Office for National Statistics.
ONS Chief Economist Grant Pfitzner said on Wednesday that a fall in food prices, which traditionally rise in the run-up to Christmas, was the main driver of the decline, with cakes, biscuits and breakfast cereals in particular seeing falls.
“Tobacco prices also contributed to lower interest rates, easing slightly this month after a strong rise a year ago. Lower prices for women’s clothing were also a factor in the decline,” Pfitzner said in comments to X.
Although the rise in the cost of goods leaving factories has slowed, companies’ annual raw material costs continue to rise, he added.
Finance Minister Rachel Reeves welcomed the drop in inflation but said there was “more work to do”.
“We know that families across the UK who are worried about the cost of living will welcome this fall in inflation, but there is more work to be done,” he told X.
Christmas rate cut
The figures, released after Tuesday’s print showing that Britain’s unemployment rate rose by 5.1%, are likely to prompt the Bank of England’s nine-member Monetary Policy Committee (MPC) to cut the benchmark interest rate by 25 basis points to 3.75% at a meeting on Thursday.
However, economists expect the central bank MPC to vote 5-4, with BOE Governor Andrew Bailey expected to be the swing vote in favor of adjustments.
Britain’s growth remains weak, with the latest data showing the economy grew just 0.1% in the third quarter, and there are signs that unemployment could rise further.
ICAEW economics director Suren Thiru said in response to the inflation figures: “These numbers, along with a slew of recent weak data, mean that tomorrow’s rate cut is a certainty.”
“While fiscal stress on households and businesses remains acute, these figures provide reassurance that the UK is moving towards a more moderate inflationary environment, supported by lower food prices,” he said in emailed comments.
“Easing labor markets and increasing downward pressure from economic decline will help keep the economy on a downward trajectory,” he said.
