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. This decrease was in line with economists’ forecasts, who had predicted a fall to 3.5%.
Inflation reflects changes in the prices of goods and services over time. The Office for National Statistics (ONS) regularly releases inflation data, attributing the recent decline mainly to lower food prices. Food inflation decreased from 4.9% in October to 4.2% in November, with tobacco prices and women’s clothing costs also contributing to the overall decrease, while raw material costs for businesses continued to rise.
Core inflation, which excludes volatile food and energy costs, also decreased more than expected from 3.4% to 3.2%. This update on inflation comes just before the Bank of England’s upcoming interest rates announcement, with most economists predicting a reduction from 4% to 3.75%. The Bank of England targets a 2% inflation rate.
Grant Fitzner, the ONS chief economist, stated that the notable fall in inflation was driven by lower food prices, slight reductions in tobacco prices, and decreased women’s clothing prices. Additionally, the rise in factory goods costs slowed due to lower food inflation, whereas raw material costs for businesses continued to climb.
Chancellor Rachel Reeves expressed that families concerned about expenses would welcome the decline in inflation. She highlighted measures taken to reduce costs, such as freezing rail fares and prescription fees and cutting average energy bills by £150 in the annual Budget. The Bank of England anticipates that these actions will help lower prices and expects inflation to decrease further next year.
Inflation signifies the rate of price increases, where a 3% inflation rate would mean an item costing £1 last year would now cost £1.03. Lower inflation does not imply a halt in price increases but rather a slower rate of increase. The ONS calculates inflation based on a basket of goods and services regularly updated to reflect consumer spending patterns.
The Bank of England aims for a 2% inflation rate and had raised interest rates gradually over nearly two years to curb inflation. Higher interest rates make borrowing more expensive, reducing consumer spending and lowering demand to bring down prices and inflation. However, elevated base rates led to higher mortgage payments for many homeowners, putting financial strain on households. The base rate, at 0.1% in December 2021, had peaked at 5.25% in August 2023 before being reduced five times to the current 4% level.
Inflation climbed steadily in 2021, peaking at 11.1% in October 2022, primarily driven by increased energy and food costs. Demand for energy surged post-Covid and was further exacerbated by the Russian invasion of Ukraine, which also pushed up food prices due to rising input costs.
Following a decrease to 1.7% in September 2024, inflation rebounded in October 2024.