UK inflation declined at the sharpest rate in 16 months to 10.7% in November as the momentum after the rising cost of clothing and petrol began to ease amid growing fears of a long recession.
The drop in the customer prices index figure was slightly bigger than expected by most City analysts, who forecast the annual pace of price rises would skate to 10.9% last month, from 11.1% in October.
However, prices were still growing, albeit at a slower rate, and the increasing costs will add to the pressure on ministers to put up wages across the public sector to complete the gap between earnings and rising prices.
Forecasts of a slump lasting until the end of 2023 have triggered falls in the price of crude oil since last year, bringing down the cost of transport. Meanwhile, the rising cost of clothes has begun to wane, forcing retailers in Europe and the US to expand stockpiles as buyers pull back from replenishing their wardrobes.
Fuel prices rose by 17.2% in the year to November 2022 down from a 22.2% increase in October, while prices of clothing and footwear rose by 7.5% – down from an 8.5% annual inflation rate in October.
Secondhand car costs also played a part in the easing back of inflation. Prices fell by 5.8% in the year to November, having jumped by more than 31% between March and November 2021.
The Office for National Statistics said the cost of hospitality, hotels, and cafeteria food played a big part in driving prices higher in November by 10.2% from 9.6% in October.
Jack Leslie, an old economist at the Resolution Foundation think tank, said Britain may now be past its inflation peak, which is good news for policymakers at both the Bank and Treasury as they wrestle with rising curiosity rates and public debt.
“But with price promotions still massively outstripping pay rises – and Britain’s poorest families facing an inflation rate of over 12% – families are still obtaining poorer month on month, and the cost of living crisis will continue to deepen in 2023.”
The chancellor added the aftershocks of Covid-19 and Putin’s weaponization of gas mean high inflation is plaguing the economy across Europe, and I know families and businesses are struggling here in the UK.
“Getting inflation down people’s wages go further is my top priority, which is why we are holding down energy bills this winter through our fuel price guarantee scheme and implementing a plan to help halve inflation next year.”
Inflation has begun falling in most major industrialized countries after a decline in the cost of petrol and a slower pace of price growth for many high street items, including clothing.
Figures emitted on Tuesday showed annual consumer price inflation in the US slowed to 7.1% in November, down from 7.7% in October.
Earlier this week it emerged that annual US inflation had also slowed to 7.1% in November, down from 7.7% reported a month earlier.
Last night, the US Federal Reserve also charged a 0.5 percentage point rise on its Funds Rate, taking it to a range between 4.25% and 4.5% (see story below).
Both the Bank of England and the Fed are tasked with keeping inflation over the long term at a level of 2%.
Today’s statement by the Bank will drive up borrowing costs almost immediately for more than two million UK mortgage clients who have taken out home loans based on either variable rate or tracker deals.
Those on fixed rates will not see a change in monthly payments immediately but may be faced with more expensive loans when they come to the end of their current deal.
The Bank said that the MPC’s nine-strong committee voted 6-3 in favor of today’s decision. Of the three dissenters, two members favored maintaining the Bank Rate at 3%, while one called for a hike of 0.75 percentage points.
Explaining its determination to raise interest rates, the Bank said that, while most indicators of international supply chain bottlenecks had shown signs of easing, “global inflationary pressures remain elevated”.
It added the labor market remains tight, and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater industry and thus justifies a further forceful monetary policy response.
Russ Mould, acquisition director at AJ Bell, said: “Even though there are signs of inflation easing, it remains significantly higher than the Bank of England’s and the Fed’s 2% target. The jobs need is also too powerful to suggest that the central banks will halt further rate rises.
“Raising speeds makes it more expensive for consumers and businesses to borrow money and theoretically causes a decline in spending and investment, which should help to ease the economy and bring down prices. Take time to work its way through the system, and central banks will continue their rate hiking path until there is adequate evidence, to support a shift in policy.”
Jenny Holt, managing director for customer savings and investments at Standard Life said the analysis shows that even with an interest rate of 3.5% higher is currently available on almost all easy-access savings accounts saving of £10,000 will be reduced by around £8,680 in terms, after two years if inflation remains at 10%.
“These figures highlight the significance of ensuring your savings are working as hard as possible for you. If your protection is earning just 1% interest, the actual value after two years is around £8,260, a difference of £420.”