UK inflation dropped more than anticipated to 3.2% in November, marking its lowest point in eight months compared to the 3.6% recorded in October. Economists had forecasted a decrease to 3.5%.
Inflation reflects the changes in prices of goods and services over time. The Office for National Statistics (ONS) releases monthly inflation data, attributing the recent decline mainly to lower food prices.
Food inflation decreased from 4.9% in October to 4.2% in November. Additionally, tobacco prices and women’s clothing costs contributed to lowering inflation, although raw material expenses for businesses continued to rise.
Core inflation, excluding volatile food and energy costs, also fell more than expected from 3.4% to 3.2%.
This update on inflation precedes the Bank of England’s final interest rates announcement of the year, with economists predicting a reduction from 4% to 3.75%. The Bank of England targets 2% inflation.
Grant Fitzner, ONS’s chief economist, stated that lower food prices were the primary factor behind the notable decrease in inflation in November. He highlighted reductions in prices of items like cakes, biscuits, and breakfast cereals, along with a slight easing in tobacco prices and women’s clothing costs.
Chancellor Rachel Reeves expressed that families concerned about bills would welcome the decline in inflation. Reeves emphasized efforts to lower costs, such as freezing rail fares and prescription fees and reducing energy bills by £150 in the recent Budget, with expectations that these measures will further decrease inflation in the coming year.
Inflation measures price escalations, where a 3% inflation rate implies that an item costing £1 last year would now cost £1.03. Lower inflation indicates that prices are still rising, albeit at a slower pace.
The ONS calculates inflation using a basket of goods and services reflecting household purchases. The headline inflation figure represents an average, meaning individual prices may vary from this figure.
The Bank of England aims for 2% inflation and had raised interest rates gradually to curb inflation back to this target. Higher interest rates make borrowing costlier, reducing spending and demand, ultimately leading to lower inflation.
While a higher base rate increased mortgage payments for many homeowners, the current rate is at 4%, having been reduced from a peak of 5.25% in August 2023 through five cuts.
Inflation surged in 2021, peaking at 11.1% in October 2022 due to elevated energy and food costs. Post-Covid energy demand soared and was exacerbated by the Ukraine conflict, raising food prices from increased fertiliser and animal feed expenses.
In September 2024, inflation hit a three-year low at 1.7% but began to rise again in October 2024.
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