LONDON -Britain’s inflation fell more sharply than expected in November to 10.7 percent from October’s 41-year high of 11.1 percent, according to the official consumer prices data, offering some comfort to the Bank of England (BoE) as it prepares to raise interest rates again.
Economists polled by Reuters had forecast that the inflation rate would slip to 10.9 percent. U.S. and euro zone inflation too have both dropped more steeply than expected last month, raising hopes that the current wave of inflation may have peaked.
“Prices are still rising, but by less than this time last year with the most notable example of this being motor fuels,” said Grant Fitzner, chief economist at the Office for National Statistics.
The BoE is battling inflation that is far above its 2 percent target and has raised rates sharply over the past 12 months.
Economists mostly expect it will raise rates again on Thursday to 3.5 percent from 3 percent, even with inflation seemingly having peaked and giving a little relief to hard-squeezed households.
“We still think the Bank will increase rates by 50bps, from 3 percent to 3.5 percent, tomorrow,” Paul Dales, an economist at Capital Economics, said. “But another 75bps hike has just become less likely and it’s possible that rates don’t rise to the peak of 4.5 percent we are forecasting.”
Last month, the BoE said Britain was heading into a long recession, with inflation unlikely to return to target until early 2024, while the government’s budget watchdog warned of the biggest squeeze on living standards since records began in the 1950s.
Following the latest inflation data, finance minister Jeremy Hunt said it was “vital that we take the tough decisions needed to tackle inflation”.
Britain is in the middle of a wave of industrial action, especially in the public sector where pay has not kept up with the private sector or with rising prices.
Hunt has said big public-sector pay rises would slow the pace at which inflation falls.
British inflation started to pick up last year, driven by post-pandemic bottlenecks in the domestic and global economy, and accelerated when European energy prices surged after Russia’s invasion of Ukraine in February.
The BoE has also said that labour shortages as well as trade and migration frictions due to Brexit have played a role in pushing up prices.
Core CPI – which excludes energy, food, alcohol and tobacco prices, and which some economists think gives a better indication of longer-term price trends – dropped to 6.3 percent in November, down from October’s reading of 6.5 percent.
However inflation in Britain’s services sector – which some BoE officials think reflects the extent to which wage pressures are being passed on by companies – did not fall from October’s 30-year high of 6.3 percent.