CPI falls to lowest rate in two years

The Office of National Statistics’ (ONS) headline measure of inflation, the Consumer Price Index (CPI), fell to 3.9% in November, its lowest rate since 2021.

The latest fall brings inflation down further from 4.6% in October.

Driving the slowdown in price rises was a number of staple food and drink products, such as pasta, butter and milk which all saw much more modest price rises than 12 months ago, although all remaining well above their 2021 prices. Average prices at the pump for petrol and diesel also fell, both compared to 2022 figures, and on the previous month’s prices.

While inflationary pressures on many goods in the ONS’ basket of products compared to produce the CPI, services were still among the upward contributors to inflation. Among the services seeing prices continue to rise were hotels and restaurants, which recorded a 7.5% average increase in prices compared to November 2022.

The fall in inflation sees the UK match the level seen in France, which has seen a more modest peak in its rate of inflation over the past two years. The country, however, continues to have a higher rate of inflation compared to other developed nations – Germany reported 2.3% inflation this month, Italy 0.6%, and the USA, 2.1%, with the average across EU countries at 3.1%.

Despite the continued fall in inflation, interest rates, which were held by the Bank of England’s Monetary Policy Committee at 5.25% once again in December, are unlikely to fall in response. The Bank’s economists have previously modelled that interests will need to remain at around their current levels and decline gradually to around 4.25% by the end of 2026. The drop in inflation, however, does reduce the likelihood of further rises in interest rates, particularly given the very slow growth forecast for the UK economy and the negative impact that higher costs of borrowing and increases to mortgage repayments are likely to have on spending.