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. The latest data from the Office for National Statistics (ONS) indicates the lowest annual inflation rate since March this year, with experts predicting a decrease to 3.5%.
Inflation reflects changes in the prices of goods and services over time, with the recent decrease primarily attributed to lower food prices. Food inflation decreased from 4.9% in October to 4.2% in November, while tobacco prices and women’s clothing costs also contributed to the decline. However, raw material costs for businesses continued to rise.
Core inflation, which excludes volatile food and energy expenses, also fell beyond expectations from 3.4% to 3.2%. This development precedes the Bank of England’s upcoming interest rate update, with many economists forecasting a reduction from 4% to 3.75%. The Bank of England aims for a 2% inflation rate.
Grant Fitzner, ONS chief economist, highlighted the significant drop in inflation driven by lower food prices, moderated tobacco costs, and reduced prices for women’s clothing. Factory goods’ cost increase slowed due to lower food inflation, contrasting with the ongoing rise in raw material expenses for businesses.
Chancellor Rachel Reeves welcomed the inflation decline, emphasizing efforts to alleviate financial burdens for families through measures like freezing rail fares and prescription fees and reducing energy bills. Lower inflation does not imply price stagnation but indicates a slower rate of increase. The ONS determines inflation based on a basket of goods and services reflecting consumer purchases.
The Bank of England’s inflation target is 2%, and previous interest rate hikes aimed to curb inflation. Higher interest rates lead to reduced spending, curbing demand and subsequently lowering prices. Despite interest rate fluctuations, the current rate stands at 4%, down from a peak of 5.25% in August 2023.
Inflation surged to 11.1% in October 2022, fueled by heightened energy and food costs, exacerbated by increased energy demand post-Covid and the Ukrainian conflict. After hitting a three-year low of 1.7% in September 2024, inflation began to rise again in October 2024.
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