The UK’s inflation rate dropped more than anticipated to 3.2% in November, marking an eight-month low. This decline contrasts with the 3.6% recorded in October. Most economists had forecasted a decrease to 3.5%.
Inflation reflects changes in the prices of goods and services over time. The Office for National Statistics (ONS) releases monthly inflation data, attributing the recent decrease mainly to lower food prices.
Food inflation eased from 4.9% in October to 4.2% in November, while tobacco prices and women’s clothing costs also contributed to the overall reduction in inflation. However, raw material costs for businesses continued to rise.
Core inflation, which excludes volatile food and energy costs, also saw a larger-than-expected drop from 3.4% to 3.2%.
The latest inflation update precedes the Bank of England’s upcoming interest rate announcement. Economists predict a reduction in the base interest rate from 4% to 3.75%. The Bank of England targets a 2% inflation rate.
Grant Fitzner, ONS chief economist, noted the significant fall in inflation, attributing it to lower food prices, reduced tobacco prices, and cheaper women’s clothing. Factory goods’ cost increase slowed due to lower food inflation, while raw material costs for businesses continued to climb.
Chancellor Rachel Reeves welcomed the inflation drop, emphasizing her priority to lower bills. She highlighted freezing rail fares, cutting energy bills, and prescription fees to alleviate financial burdens on families.
Inflation measures price increases, indicating that an item costing £1 last year would now cost £1.03 with a 3% inflation rate. Lower inflation doesn’t imply prices have stopped rising but that the rate of increase has slowed.
The ONS calculates inflation using a basket of goods and services that represent household purchases. The headline inflation figure represents an average, and individual prices may vary.
The Bank of England aims for 2% inflation and adjusts interest rates to influence inflation. Higher rates make borrowing costly, reducing spending and demand, which can lower prices and inflation. Despite reaching a peak of 5.25% in August 2023, the base rate currently stands at 4%.
In 2021, inflation rose, peaking at 11.1% in October 2022 due to higher energy and food costs. The demand for energy surged post-Covid and further escalated following the Russian invasion of Ukraine, driving up food prices.
In September 2024, inflation hit a three-year low at 1.7% before slightly rising again in October 2024.