UK inflation dropped to 3.2% in November, marking an eight-month low and a decline from the 3.6% recorded in October. The decrease, lower than the predicted 3.5%, represents the lowest annual inflation rate since March this year. Inflation measures the price changes of goods and services over time, with the Office for National Statistics 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 the decline in inflation. On the other hand, raw material costs for businesses continued to rise. Core inflation, excluding volatile food and energy expenses, also fell from 3.4% to 3.2%, surpassing expectations.
This update comes as the Bank of England prepares to announce its final interest rates update of the year. Economists anticipate a cut in the base interest rate from 4% to 3.75%, aligning with the Bank of England’s 2% inflation target.
Chancellor Rachel Reeves welcomed the inflation decrease, emphasizing the importance of reducing bills for families across Britain. Reeves highlighted measures taken, such as freezing rail fares and prescription fees and reducing energy bills at the Budget, to alleviate financial burdens. The Bank of England expects inflation to decline further next year as a result of these actions.
Inflation indicates price increases, where a 3% inflation rate would mean an item costing £1 last year now costs £1.03. Lower inflation does not imply prices have stopped rising but rather that the rate of increase has slowed down. The ONS calculates inflation based on a basket of goods and services regularly updated to reflect consumer spending habits.
The Bank of England aims for 2% inflation and had raised interest rates over nearly two years to combat inflation. Higher interest rates lead to increased borrowing costs, curbing spending and reducing demand, ultimately lowering prices and inflation. However, the higher base rate had strained households by increasing mortgage payments. Despite reaching a peak of 5.25% in August 2023, the base rate has been cut five times to the current 4%.
Inflation surged in 2021, peaking at 11.1% in October 2022, driven by elevated energy and food costs. Factors such as increased energy demand post-Covid and the Russian invasion of Ukraine further escalated prices. In September 2024, inflation hit a three-year low at 1.7% but began rising again in October 2024.