British inflation unexpectedly drops to 3.9 percent, the lowest in two years
Deeper into the numbers: core inflation is falling to the lowest level since January 2022.
Other inflation measures used to assess how deeply entrenched price pressures are in the economy have also declined. Core inflation, which excludes energy and food prices which are more volatile and strongly influenced by international markets, fell to 5.1 percent in November from 5.7 percent the month before.
Services inflation – a measure of companies’ wage costs – cooled slightly, to 6.3 percent.
Why it matters: Lower inflation will ease household budgets.
Inflation has slowed significantly from last year’s peak, when inflation topped 11 percent, the fastest pace in four decades. With household budgets under pressure from high energy and food costs, the Bank of England was in the midst of an aggressive series of rate hikes to tame inflation.
Recently the government has argued that the UK economy has reached a tipping point. Inflation is lower than average wage growth, which should help alleviate the long-term cost of living crisis for some.
“With inflation having more than halved, we are starting to remove inflationary pressure from the economy,” Jeremy Hunt, the Chancellor of the Exchequer, said in a statement. “But many families are still struggling with high prices, so we will continue to prioritize measures that help reduce pressure on living costs.”
The pain of higher inflation is still being felt by many households. Food prices have risen 27 percent compared to two years ago Household energy bills will rise in January. The impact of higher interest rates continues to ripple through the economy as homeowners pay higher mortgage rates and businesses face higher financing costs.
What happens now: Bank of England balances persistent inflation with weak growth.
Inflation in Britain remains around double the Bank of England’s 2 percent target and, despite the unexpectedly large slowdown in November, is still relatively high compared with its Western European neighbors.
Bank of England policymakers said last week that they expect to keep interest rates high for some time to come, and that it is still too early to talk about rate cuts, even as inflation slows and the economy is expected to level off until 2025 . what setters are focusing on is the continued strength of wage growth: average wages rose about 7 percent in the three months to October, compared with a year earlier.
This week, Ben Broadbent, deputy central bank governor, warned that policymakers needed to see a “longer and more pronounced decline” in official wage data before they could be confident that this source of inflationary pressure had abated.