"While this is a very welcome fall in inflation, we believe that the Bank of England will not see it as a signal to cut rates – not yet at least."
- Derrick Dunne, CEO of YOU Asset Management
CPI inflation rose by 3.9% in the 12 months to November, down from 4.6% in October, according to the latest ONS statistics.
On a monthly basis, CPI fell by 0.2% in November, compared with a rise of 0.4% in November 2022.
CPIH inflation, which includes owner occupiers' housing costs, rose by 4.2% over the year, down from 4.7% in October.
The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from transport, recreation and culture, and food and non-alcoholic beverages.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 5.1% in the year to November, down from 5.7% in October; the CPI goods annual rate slowed from 2.9% to 2.0%, while the CPI services annual rate eased from 6.6% to 6.3%.
Derrick Dunne, CEO of YOU Asset Management, commented: “Inflation is sliding faster than most people had expected, which will ultimately lead to questions about if – or when – the Bank of England should look to start cutting interest rates cuts.
“Make no mistake, this reading is a major surprise. Many analysts had expected CPI to fall from 4.6% to between 4% and 4.4%.
“But while this is a very welcome fall in inflation, we believe that the Bank of England will not see it as a signal to cut rates – not yet at least.
“Yes, the medicine seems to be working, but inflation remains nearly twice the Bank’s long-term target, and so it will want to get the job finished before it contemplates cutting rates.
“On top of that, the data is mixed and doesn’t clearly point towards higher interest rates hobbling the economy. The economy contracted in October, but consumer spending remains robust and the PMI figures from December shows an expansion in activity from the manufacturing and services sectors.
“If we had to hang our hats on it, we think the Bank of England won’t even consider lowering rates until the second half of the year and, even then, only if inflation has fallen sufficiently and the economy needs a boost."
Debapratim De, senior economist at Deloitte, said: “The sharper-than-expected fall in inflation in November is good news, pointing to a continued easing in price pressures.
“Those hoping that this allows the Bank of England to soften its relatively hawkish stance on interest rates might be disappointed though. Measures of underlying pricing strength, such as core and services inflation, have eased further but still remain at elevated levels."
Adam Oldfield, chief revenue officer at Phoebus Software, added: “The drop in inflation to 3.9% is greater than almost everyone expected. It will be welcome news to many as we head into Christmas and with wages rising at almost double the rate of inflation at 7.3%, many should now start to feel better off than they have done for a considerable time. That said, there appears to be a real divide between those with money and those with less, for whom any inflation causes a very real impact.
“Of course, inflation is still almost double the 2% target that the Bank of England is set, so further measures will need to be taken, but it means that while interest rates are unlikely to fall just yet, that decreases may well be on the cards by the second quarter of 2024 if inflation continues on its downward trajectory. The markets already appear to be pricing this into mortgage rates, which have been dropping over the past two months. Good news for the 1.3million people still due to come off their five-year fixed rate mortgage next year.
“These will no doubt be very welcome figures for the government as it looks to set a date for the general election next year.”
