UK inflation dropped more than anticipated to 3.2% in November, marking its lowest point in eight months, down from the 3.6% reported in October. This latest figure represents the lowest annual inflation rate since March, with most economists predicting a decrease to 3.5%.
Inflation reflects the changes in prices of goods and services over time. The Office for National Statistics (ONS) releases monthly inflation data, attributing the recent decline primarily to lower food prices.
Food inflation reduced from 4.9% in October to 4.2% in November, along with declines in tobacco prices and women’s clothing costs contributing to the overall decrease in inflation. However, raw material costs for businesses continued to rise.
Core inflation, excluding volatile food and energy costs, also declined beyond expectations from 3.4% to 3.2%.
This update on inflation comes just before the Bank of England’s final interest rate announcement of the year, with most economists forecasting a reduction from 4% to 3.75%. The Bank of England aims for a 2% inflation target.
Grant Fitzner, chief economist at the ONS, highlighted the notable drop in inflation, attributing it to lower food prices, reduced tobacco prices, and decreased women’s clothing costs. Additionally, the increase in factory goods costs slowed due to lower food inflation, while raw material costs for businesses continued to rise.
Chancellor Rachel Reeves expressed that families facing financial concerns would welcome the decline in inflation, emphasizing efforts to reduce bills through measures such as freezing rail fares and prescription fees and cutting energy bills. This is expected to contribute to a faster decline in inflation next year.
Inflation serves as a measure of price increases, where a 3% inflation rate implies that an item costing £1 last year would now cost £1.03. Lower inflation rates indicate that prices are still rising, albeit at a slower pace.
The ONS calculates inflation based on a basket of goods and services reflecting household purchases, with the headline inflation figure representing an average, meaning individual prices may vary.
The Bank of England’s inflation target is 2%, and interest rates were adjusted over nearly two years to bring inflation back to this target. Higher interest rates make borrowing costlier, limiting spending and reducing demand, ultimately lowering prices and inflation.
Initially peaking at 11.1% in October 2022 due to increased energy and food costs post-pandemic and amid the Ukrainian conflict, inflation dropped to 1.7% in September 2024 before a slight uptick in October 2024.
The Bank of England’s base rate, initially at 5.25% in August 2023, has been reduced five times to the current level of 4%.