Inflation falls lower than expected to 3.2%

UK inflation dropped more than expected in November to reach an eight-month low of 3.2%. Inflation, measured by the consumer prices index (CPI), fell to an annual rate of 3.2% in November, from 3.6% in October, according to the Office for National Statistics (ONS). The figure was below the 3.5% forecast from analysts surveyed by Reuters and marked a notable decline month on month.  

According to the ONS, the fall in inflation was driven by lower prices for food, drink and clothing. 

The unexpected drop only adds more weight to the argument for the Bank of England to lower interest rates on Thursday, 18th of December in an effort to support the economy.  

Bank of England governor Andrew Bailey has indicated he would back another quarter-point cut to 3.75% at this week’s Monetary Policy Committee meeting, provided official data continues to point to a slowdown in inflation. 

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affects the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.  

The cost of living surged in recent years, with inflation peaking at 11% in 2022 - way above the Bank of England's 2% target, partly due to the increase in energy prices following Russia's invasion of Ukraine.

While the rate has dropped, falling inflation does not mean the goods and services are coming down in price overall, it is just that they are rising at a slower pace. 

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This article is for information only and does not constitute individual advice.