The UK’s above-target inflation rate has fallen to 3.2% for the year ending in November 2023. That would be its lowest level since March. This striking drop is a welcome relief in the backdrop of the persisting economic storm. The decline in inflation is mainly due to a decrease in food prices, especially for cake, biscuit, alcohol and tobacco. Even with this drop, prices for these necessary goods are still about 4% more than they were a year ago.
Chancellor Rachel Reeves said, “This is good news, long overdue, but there is more to do. The UK government has absolutely no desire to address the growing cost of living crisis. They’re proposing to cut the average household energy bill by £150 over the next year.
This is welcome news, as the Office for National Statistics (ONS) have announced that UK inflation (CPI) rate has decreased. Its unemployment rate dropped from 3.8% in September to 3.6% in October. Forecasters had expected a modest drop, calling for a revision down to 3.5% from 3.6% in November.
This past drop is important ONS’s Chief Economist Grant Fitzer wrote about the significance of this recent decline.
“Inflation fell notably in November to its lowest annual rate since March. Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall with decreases seen particularly for cakes, biscuits and breakfast cereals.” – Grant Fitzer
The drop in inflation signifies a positive trend after the UK had experienced a peak inflation rate of 11.1% in October 2022. Just three years ago, inflation had gotten very close to zero before rapidly increasing over the next two years and beyond.
Although substantial recent decreases have been observed, inflation is still nearly 4% for food, alcohol, and tobacco compared to the last year. This increase is a potent indicator of the ongoing economic pressures. Costs for overnight hotel stays and restaurant meals have only gone up since then. This stubborn rise only makes the shaky economics more challenging.
ONS has to very carefully select and weigh a basket of goods and services to calculate inflation rates. This procedure allows the basket to remain a precise reflection of actual market behavior. This wonky calibration goes a long way towards providing a better, more consumer-relevant picture of economic realities consumers are facing.
As the UK economy keeps sailing through these waves, government officials and economic analysts are paying careful attention. While this recent data provides some hope, it casts a spotlight on the long road still ahead.