UK inflation dropped more than anticipated to 3.2% in November, marking its lowest point in eight months, a decrease from the 3.6% recorded in October. This latest data represents the lowest annual inflation rate since March, with most experts predicting a 3.5% decline.
Inflation serves as a measure of how prices of goods and services have evolved over time. The Office for National Statistics (ONS) regularly publishes inflation data, attributing the recent decrease mainly to lower food prices.
Food inflation eased from 4.9% in October to 4.2% in November, while tobacco prices and women’s clothing costs also contributed to driving down inflation. However, the expenses related to raw materials for businesses continued to rise.
Core inflation, excluding volatile food and energy costs, also saw a larger-than-expected decline from 3.4% to 3.2%. This update on inflation arrives just ahead of the Bank of England’s upcoming announcement on interest rates, with most economists predicting a reduction from 4% to 3.75%.
Grant Fitzner, the ONS’s chief economist, highlighted that lower food prices, reduced tobacco costs, and decreased women’s clothing prices were significant factors in the inflation decrease. He noted a slowdown in the cost of goods leaving factories due to lower food inflation, while raw material expenses for businesses continued to climb.
Chancellor Rachel Reeves expressed satisfaction with the inflation drop, emphasizing her focus on reducing bills by implementing measures such as freezing rail fares, cutting energy bills, and anticipating further inflation reduction in the coming year.
Inflation indicates the rate of price increases, where a 3% inflation rate means an item that cost £1 last year would now cost £1.03. Lower inflation does not signify a halt in price increases but rather a slower rate of increase.
The ONS calculates inflation based on a diverse “basket of goods” and services reflecting household purchases. While the main inflation figure serves as an average, individual prices of specific goods may deviate from this figure.
The Bank of England aims for a 2% inflation rate, having adjusted interest rates over nearly two years to align with this target. Higher interest rates lead to increased borrowing costs, curbing spending and lowering demand, ultimately reducing inflation.
The base rate, currently at 4%, had peaked at 5.25% in August 2023 before undergoing five reductions. Inflation escalated in 2021, hitting 11.1% in October 2022, primarily driven by elevated energy and food expenses.
Energy demand surged post-Covid and was further exacerbated by the Ukraine conflict, which also elevated food prices due to increased costs of fertilizers and animal feed. Although inflation dipped to 1.7% in September 2024, it began climbing again in October of the same year.