UK inflation fell more sharply than expected in November, reaching its lowest level in eight months and strengthening the case for the Bank of England to cut interest rates at its policy meeting this week.
New figures from the Office for National Statistics show consumer price inflation eased to 3.2% in November, down from 3.6% in October, undershooting economists’ forecasts of a smaller fall to 3.5%.
Inflation slowdown clears path for rate cut
The sharper-than-expected decline has increased confidence among economists and financial markets that the Bank of England will cut borrowing costs on Thursday.
The fall takes inflation to its lowest level since March and comes amid weakening economic growth and rising unemployment, both of which are easing inflationary pressures across the economy.
Food prices drive inflation lower
The ONS said the main driver of November’s slowdown was food prices, which typically rise at this time of year but instead fell due to heavy discounting and supermarket promotions.
Grant Fitzner, the ONS chief economist, said price declines were particularly pronounced for cakes, biscuits and breakfast cereals, while tobacco prices also contributed after easing following a sharp rise a year earlier.
Women’s clothing prices also fell, helped by Black Friday discounts and early winter sales.
Black Friday discounts ease pressure
Retailers confirmed that widespread discounting played a significant role in bringing inflation down.
Kris Hamer, director of insight at the British Retail Consortium, said Black Friday promotions extended throughout November, leading to bigger discounts across food and non-food items ahead of Christmas.
He said notable price cuts were seen for meat products such as pork, lamb and chicken, helping households manage food bills during the festive period.
Sharp falls in key food products
Several staple food items saw significant price drops compared with last year.
Olive oil prices fell by 16.2%, flours and other cereals dropped by 6.1%, while pasta products and couscous were down by 4.2%, reversing sharp increases recorded in 2023.
Overall food and drink inflation slowed from 4.9% in October to 4.2% in November.
Core inflation also cools
Further strengthening the case for a rate cut, core inflation, which strips out volatile items such as food and energy and is closely watched by the Bank of England, eased from 3.4% to 3.2%.
Economists say the cooling in both headline and core inflation suggests underlying price pressures are continuing to fade.
Markets price in interest rate cut
Financial markets are now pricing in more than a 90% chance of a quarter-point cut in the Bank of England’s base rate from its current level of 4%.
Sterling fell by 0.7% against the US dollar following the data release, while government borrowing costs also declined as investors adjusted their expectations for looser monetary policy.
James Smith, developed markets economist at ING, said the latest inflation figures confirm that price pressures are easing and that further rate cuts are likely next year.
Chancellor highlights cost-of-living focus
Chancellor Rachel Reeves has made reducing the cost of living a central priority, including in last month’s autumn budget.
The budget included £26bn in tax rises aimed at stabilising the public finances, alongside measures to ease household costs, including relief on energy bills, prescription charges and fuel duty.
The Bank of England has said these measures could reduce headline inflation by up to half a percentage point next year.
Reeves said families worried about rising bills would welcome the latest fall in inflation, adding that lowering household costs remains her top priority.
Inflation still above target
Despite the November slowdown, inflation remains well above the government’s 2% target, limiting how far and how fast interest rates can be cut.
Some economists warned that persistent pressures, including services inflation and wage growth, could restrict further easing beyond 2026.
Mel Stride, the shadow chancellor, said that while falling inflation is welcome, prices are still rising faster than is comfortable for many households.
Household pressures remain intense
Anti-poverty groups warned that many families are still struggling despite easing inflation.
Chris Belfield, chief economist at the Joseph Rowntree Foundation, said prices remain significantly higher than before the inflation surge in 2021.
He said around seven million households are entering Christmas unable to afford essential items, while unemployment has risen back towards pre-pandemic levels and real earnings growth remains weak.
