UK inflation fell by more than expected in November amid a slowdown in food prices, official figures show, strengthening the case for the Bank of England to cut interest rates on Thursday.
In a crunch week for the economy, the Office for National Statistics said the rate as measured by the consumer prices index eased to 3.2% last month from a reading of 3.6% in October. City economists had forecast a modest drop to 3.5%.
The reading dropped to the lowest annual rate since March. Grant Fitzner, the ONS chief economist, said: “Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall with decreases seen, particularly for cakes, biscuits, and breakfast cereals.
“Tobacco prices also helped pull the rate down, with prices easing slightly this month after a large rise a year ago. The fall in the price of women’s clothing was another downward driver.”
The Bank of England is expected to cut its base rate on Thursday amid weaker economic growth, rising unemployment and easing inflationary pressures. Financial markets predicted a 90% probability of a quarter-point reduction before the release of the latest inflation snapshot.
The latest reading showed inflation in food and drink prices slowed from 4.9% in October to 4.2%, as the price of products such as cakes, biscuits and breakfast cereals fell this year but rose a year ago.
Core inflation – which excludes volatile items including energy and food, and is closely monitored by the Bank – also cooled from 3.4% to 3.2%
The chancellor, Rachel Reeves, made tackling the cost of living a major target of last month’s autumn budget, alongside £26bn of tax increases to help repair the public finances and fund the end of the two-child benefit cap.
The Bank has said it expects the chancellor’s measures – including relief on energy bills, prescription charges and fuel duty – could cut headline inflation by as much as half a percentage point next year.
“Getting bills down is my top priority,” Reeves said after the release of the latest snapshot. “I know families across Britain who are worried about bills will welcome this fall in inflation.”
Further strengthening the case for a rate cut, the reading comes amid a slowdown in the jobs market and after figures last week showed the economy unexpectedly shrank in October, as consumers held back on spending amid intense pre-budget speculation. Car manufacturing also struggled to recover from a cyber-attack on Jaguar Land Rover.
Economists said retailers’ Black Friday and pre-Christmas offers could have contributed to the fall in the headline rate in November, amid discounts for meat products, clothing, footwear and furniture.
Paul Dales, the chief UK economist at the consultancy Capital Economics, said: “The further big fall in CPI inflation will surely be enough to prompt the governor of the Bank of England to reach into his big bag tomorrow and give borrowers the early Christmas present of a cut in interest rates from 4% to 3.75%.”
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