Decline in UK inflation raises the likelihood for Bank of England rate cuts in 2024

When British inflation fell to its lowest level in more than two years in November, investors increased their wagers that the Bank of England would lower interest rates in the following year.

The Office for National Statistics said on Wednesday that the annual rate of increase for the consumer prices index fell to 3.9% from 4.6% in October, partly due to lower petrol costs. This is the lowest figure since September 2021.

The headline inflation rate fell short of every economist's prediction in a Reuters survey, which had suggested a number of 4.4%. The BoE's highly monitored core and services inflation indices also decreased.

With its headline inflation rate now equal to France's, British inflation no longer appears to be such an anomaly on a global scale.

Nonetheless, British consumer prices have increased by about 21% since 2020—more than any other advanced country in the Group of Seven and tied for the greatest increase in Western Europe.

BoE policymakers have been hesitant to declare that the current drop in inflation is an indication that longer-term, persistent pricing pressures are abating.

According to the ONS, motor fuels in particular are the primary factor causing the largest decline in inflation in November.

Although they are still 27% higher than two years ago, food and drink costs have increased significantly less than they did in November of last year, which also helped.

It is anticipated that in 2024, Prime Minister Rishi Sunak, who is expected to fulfil his pledge to cut inflation in half this year, will call for national elections.

When energy and food costs are excluded, core inflation, which was 5.7% earlier in the year, dropped surprisingly sharply to 5.1%.

As a measure of inflation created domestically, the rate of services inflation, which BoE policymakers particularly monitor, dropped from 6.6% to 6.3%.

(Sources: investing.com, reuters.com)