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Cooling Inflation Strengthens Case For Rate Cut

Today’s data from the Office for National Statistics that showed that annualised inflation came in at 3.2% in November, down from the 3.6% reported in October. Core Inflation came in at 3.2% in the 12 months to November, down from the 3.4% in October. MoM inflation came in at -0.2% down from 0.4% in October.

Image by Steve Buissinne from Pixabay

UK inflation undershot expectations in November, bolstering the case for interest rate cuts in the face of challenging economic conditions.

Not only did the headline rates fall far more than anticipated, but services inflation, a key concern for the Bank of England also declined to 4.4%.

Despite inflation falling, there is still some way to go before the headline rates fall back to the 2% target. However, today’s news is a bright spot for the Bank of England, Government and consumers alike. With challenging economic conditions in the form of declining GDP and an un-employment rate nearing a five- year high, it is hoped a perfectly wrapped rate cut tomorrow will deliver some festive cheer to the UK economy.

Isaac Stell, Investment Manager at Wealth Club

Inflation has fallen back decisively in today’s data, and by more than expected, bringing the rate to its lowest since March. Food price inflation has eased sharply to its lowest rate since April, despite typically rising at this time of year, while services inflation – a key indicator of domestic price pressure – has also edged down. Together, these figures increase the likelihood of a welcome interest rate cut tomorrow.

Recent indicators point to a notable weakening in both the economy and the labour market, with unemployment reaching its highest level since 2015. Today’s inflation outturn has also come in below the Bank of England’s expectations, driven in part by unexpectedly soft food prices. The Bank will also assess the impact of the recent Budget on the outlook for inflation. And despite being trailed as actively disinflationary, the Budget’s effects are more mixed due to the increase in spending and borrowing over the next two years. But on balance, the case for a rate cut has been made.

Anna Leach, Chief Economist at the Institute of Directors

Inflation eased more than expected in November, falling noticeably below the Bank of England’s projections. The slowdown in inflation is expected to continue next year as the impact of previous price increases in energy and utilities bills fades, according to the CBI’s latest Economic Forecast.

While we remain some way from the Bank of England’s 2% target, this latest data offers clearer evidence that underlying price pressures are continuing to ease. This outturn will strengthen the case for the Monetary Policy Committee to cut rates in December – despite ongoing debate within the Committee about the degree of inflationary persistence in the economy.

Martin Sartorious, CBI Principal Economist