The UK’s Consumer Prices Index (CPI) inflation has fallen to 3.9 percent in November, 0.4 points lower than what economists had predicted.
Prime Minister Rishi Sunak hailed the “good news,” with Chancellor Jeremy Hunt declaring the UK is “back on the path to healthy sustainable growth.”
The ease in inflation has also sparked hopes that the Bank of England would start cutting rates early next year.
According to the Office for National Statistics (ONS), CPI rose by 3.9 percent in the 12 months to November 2023, down from 4.6 percent in October.
The figures are down from a peak of 11.1 percent in October 2022 and 10.7 percent in November 2022.
Meanwhile, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.2 percent in the 12 months to November, down from 4.7 percent in October.
Core CPI, which excludes items in which prices fluctuate a lot, such as energy, food, alcohol, and tobacco, rose by 5.1 percent, compared to 5.7 percent in October.
Grant Fitzner, chief economist at the ONS, said inflation is at “its lowest annual rate for over two years,” but prices “remain substantially above what they were before the invasion of Ukraine.”
Between October and November, CPI fell by 0.2 percent, compared to a rise of 0.4 percent during the same period last year.
Mr. Fitzner said the biggest driver for the monthly 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, he said. “There was also a price drop for a range of household goods and the cost of second-hand cars.”
Responding to the new figure, Mr. Hunt wrote on X, formerly known as Twitter, “Inflation has more than halved,” showing “the plan is working.”
“With inflationary pressures easing, alongside the major business tax cuts I announced in the autumn statement, we are back on the path to healthy sustainable growth,” he said.
He also told broadcasters that once inflation is down, “you can start looking forward to the kind of growth that will see people’s wages going up.
“On top of which, when we can, we want to bring down the tax burden so that people keep more of the money that they earn every month,” he said.
Shadow chancellor Rachel Reeves said the fall in inflation “will come as a relief to families,” but “after 13 years of economic failure under the Conservatives, working people are still worse off.”
“Prices are still going up in the shops, household bills are rising, and more than a million people face higher mortgage payments next year after the Conservatives crashed the economy,“ she said, promising a ”a long-term plan to make working people better off” under Labour.
Last month, the prime minister declared victory after his self-imposed target of halving the inflation was met, but the Bank of England has been quick to warn that the job of bringing inflation back to its 2 percent target is far from done and has poured cold water on mounting hopes of an imminent interest rate cut.
The bank’s Monetary Policy Committee (MPC) held the base interest rate at 5.25 percent last week. While the figure is relatively low compared to historical standards, it’s the highest level seen in 15 years, during which the rate has largely been below 1 percent.
The faster-than-expected drop in inflation has kindled hopes that rate cuts would arrive earlier, easing pressure on mortgages and boosting the wider economy.
Martin Beck, chief economic adviser to the EY Item Club, said the scale of the latest drop in inflation “calls into question the justification of the MPC’s high for longer rhetoric around interest rates.”
He is pencilling in rate cuts to begin next spring.
Samuel Tombs, at Pantheon Macroeconomics, added: “November’s surprisingly sharp fall in CPI inflation reinforces the likelihood that the MPC 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 percent in the second quarter of next year.
The Bank forecast last month it would take another two years to come back to target.
