U.K. inflation fell more than expected in November, falling to a 10-month low and raising the likelihood that the Bank of England will make a fourth interest rate cut of the year.
Official figures from the Office for National Statistics (ONS) showed the consumer price index (CPI) rose 3.2 percent in the year to November, compared to 3.6 percent in October. The figure was below the Bank of England’s forecast of 3.4 percent and the 3.5 percent expected by City economists, marking the lowest inflation rate since March.
Core inflation, which excludes volatile energy and food prices and is closely monitored by policymakers, also surprised negatively, falling from 3.4 percent to 3.2 percent. On a monthly basis, prices fell 0.2 percent between October and November, signaling a renewed bout of disinflation.
According to the ONS, lower food prices were the main reason for the slowdown. Monthly food prices fell 0.2 percent at a time of year when they usually rise, while annual food inflation fell to 4.2 percent from 4.9 percent. Inflation for alcohol and tobacco also fell significantly, from 5.9 percent to 4 percent.
Clothing prices put an additional burden on inflation, with annual price growth becoming negative at minus 0.6 percent. This, combined with easing pressures across several consumer categories, contributed to overall inflation being lower than expected.
Grant Fitzner, chief economist at the ONS, said the decline was broad-based.
“Inflation fell significantly in November to its lowest annual level since March,” he said. “Lower food prices, which traditionally rise at this time of year, were the main reason for the decline, with declines particularly seen in cakes, biscuits and breakfast cereals.
“Tobacco prices also helped drive the rate down, with prices falling slightly this month after a sharp rise a year ago. The fall in women’s clothing prices was another downward driver.”
The data bolsters expectations that the Bank of England’s monetary policy committee will vote to cut the key interest rate from 4 percent to 3.75 percent at its meeting on Thursday. Economists and traders are predicting a tight cut decision after a series of recent indicators point to a slowing economy.
Earlier this week, official figures showed a rise in unemployment and a weakening labor market while wage growth continued to slow – developments that are reducing inflationary pressures and strengthening the case for looser monetary policy.
Lower interest rates would provide some relief to households and businesses by reducing borrowing costs at a time when economic growth remains fragile and confidence subdued.
