UK inflation fell more than expected to 3.2%, raising the case for deflation
UK inflation fell more than expected in November, falling to a 10-month low and raising the prospect of the Bank of England delivering a fourth interest rate cut in a year.
Official figures from the Office for National Statistics (ONS) showed that the consumer price index (CPI) rose by 3.2 per cent in the year to November, down from 3.6 per cent in October. The reading was below the Bank of England’s forecast of 3.4 percent and the 3.5 percent expected by City economists, marking the lowest rate of inflation since March.
Core inflation, which strips out volatile energy and food prices and is closely watched by policymakers, also surprised on the lower side, falling from 3.4 percent to 3.2 percent. On a monthly basis, prices fell by 0.2 percent between October and November, indicating a resurgence of disinflation.
Low food prices were the main cause of the fall in prices, according to the ONS. Monthly food prices fell 0.2 percent during a time of year when they tend to rise, while annual food inflation eased from 4.9 percent to 4.2 percent. Inflation for alcohol and tobacco also fell significantly, from 5.9% to 4%.
Clothing prices provided an additional drag on inflation, with annual price growth turning negative at 0.6 percent. This, combined with easing pressure on several consumer segments, helped pull inflation lower than expected.
Grant Fitzner, chief economist at the ONS, said the fall was broadly supported.
“Inflation fell sharply in November to the lowest level since March,” he said. “Lower food prices, which tend to rise at this time of year, are the best for autumn, with the decline particularly evident in cakes, biscuits and breakfast cereals.
“The price of cigarettes also helped to reduce the price level, as the prices decreased slightly this month after a big increase last year.
The data reinforces expectations that the Bank of England’s monetary policy committee will vote to cut the base rate from 4 percent to 3.75 percent at its meeting on Thursday. Economists and traders are predicting a narrow decision in favor of cuts, following a series of recent indicators pointing to a cooling economy.
Earlier this week, official figures showed unemployment rising and the labor market weakening, while wage growth has slowed – a development that eases inflationary pressures and increases the case for loose monetary policy.
Lower interest rates will provide some relief to households and businesses by reducing borrowing costs, at a time when economic growth remains weak and confidence is low.
