Inflation slows to 10.7 per cent in November

British inflation fell more sharply than expected in November to 10.7 per cent from October’s 41-year high of 11.1 per cent, according to official consumer prices data that may offer some comfort to the Bank of England and hard-squeezed households.

Economists polled by Reuters had forecast the consumer price inflation rate would drop to 10.9 per cent. Both US and euro zone inflation fell more steeply than expected last month, raising hopes that the current wave of inflation may have peaked.

“Prices are still rising, but by less than this time last year with the most notable example of this being motor fuels,” the Office for National Statistics’ chief economist, Grant Fitzner, said.

The BoE is battling inflation that is far above its two per cent target, and has raised interest rates sharply over the past 12 months. Economists mostly expect it will raise rates again on Thursday to 3.5 per cent from three per cent.

Last month the BoE forecast Britain was heading into a long recession, with inflation not returning to target until early 2024, and the government’s budget watchdog predicted the biggest squeeze on living standards since records began in the 1950s.

Core CPI – which excludes energy, food, alcohol and tobacco prices, and which some economists think gives a better indication of longer-term price trends – dropped to 6.3 per cent in November, down from October’s reading of 6.5 per cent.

The slowing rate of annual inflation also reflects stability of motor fuel prices, previously a major inflation driver, partially offset by higher prices in restaurants, cafes and pubs.

Inflation remains high in food and non-alcoholic beverages, running at 16.5 per cent year-on-year and the highest level since September 1977.

“While the annualised rate of inflation slowed in November, consumers are unlikely to feel any relief in the cost-of-living crisis,” Nicholas Hyett, investment analyst at Wealth Club, commented.

“Prices overall continue to rise, with food prices in particular rising at their fastest rate in 45 years. What relief there is for consumers comes mostly in transport – but petrol prices have remained parked month-on-month rather than going into reverse.”

Hyett added that policy makers face some difficult choices in this situation.

“On the one hand headline inflation is easing, but whether that’s due to a weakening in local demand or simply global commodity prices is less clear. Areas like hospitality, which are more affected by domestic inflation, continue to see prices rise substantially, suggesting ‘core inflation’ remains untamed. That’s a headache for central bankers – raising rates might help bring domestic inflation under control, but it will also exacerbate the cost-of-living crisis and potentially condemn the UK to a painful recession,” Hyett said.

British inflation started to pick up last year, driven by post-pandemic bottlenecks in the domestic and global economy, and accelerated when European energy prices surged after Russia’s February invasion of Ukraine.

The BoE has also highlighted labour shortages and trade and migration frictions due to Brexit as playing a role in pushing up prices.