UK inflation rate drops again

Dec 20, 2023

Are base rate decreases coming soon?

The annual inflation rate in the UK continued to fall in November, dropping to 3.9% from last month’s 4.6%.

The latest consumer price inflation (CPI) data published by the Office for National Statistics (ONS) on Wednesday also showed a decrease in core CPI – which excludes energy, food, alcohol and tobacco – to 5.2% in the 12 months to November 2023, down from 5.6% in October.

The largest downward contribution to the monthly change in CPI annual rates came from transport, recreation and culture, and food and non-alcoholic beverages.

Inflation eased again to its lowest annual rate for over two years, but prices remain substantially above what they were before the invasion of Ukraine,” Grant Fitzner, chief economist at the Office for National Statistics, reported.

“The biggest driver for this month’s 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. There was also a price drop for a range of household goods and the cost of second-hand cars.

“Factory gate prices remain little changed over the past year, while on an annual basis, the change in costs that producers pay for raw materials and fuel was negative for the sixth consecutive month.”

Ben Thompson, deputy chief executive at mortgage intermediary brand and specialist network Mortgage Advice Bureau, said that with the latest fall in inflation, “the market has some festive cheer, and it’s hoped this will continue into 2024.”

“The good news of a third consecutive base rate pause has already led to lenders cutting rates, and November’s inflation reading is another present for policymaker,” Thompson added. “However, it’s not all Celebrations and Baileys at the Bank of England. Inflation remains above the 2% target, and as the minutes from last week’s interest rate decision revealed, rates will likely need to stay higher for a while yet to shake out any lingering inflation.”

Andrew Gething, managing director at MorganAsh, said that while greater than initially predicted, today’s news of a more subtle drop is somewhat akin to the gradual improvements economists expect to see moving forward.

“This is more positive news, especially as it is driven by the easing of food costs and petrol prices – two key pressures for the general public,” Gething pointed out.

“Of course, the Bank of England will continue to play Scrooge and remind everyone we are not out of the woods just yet, with inflation still high and some way off the illusive 2% target. They may even have one eye on next month’s figures and any potential impact of both Christmas shopping and seasonal spending. As a result, any predictions for an early base rate drop in 2024 may need to be reevaluated – especially as three MPC members voted for a rise just last week.”

Mohsin Rashid, CEO of software firm ZIPZERO, agreed, saying that while today’s figures provide much-welcomed comfort that inflation is headed in the right direction, that “does not mean that all is merry.”

“The cost-of-living crisis will still be casting a nasty shadow over people’s Christmases, and undoubtedly stockings will shrink as millions reel from the aftermath of two years of financial hardship, driven by rising interest rates and sky-high inflation,” Rashid stated.

“The one gift Britons still need this Christmas is support. Support from the government in the form of longer-term financial aid and relief packages in 2024, and support from retailers to keep prices affordable in the New Year.”