The UK is enjoying, in an absolute sense, a very steep fall in inflation. In November, it dropped to 3.2%, a decrease from 3.6% in October. That steep decline happens to coincide with consumers showing increased care in their spending habits with rising fears over the state of the economy. The Office for National Statistics (ONS) today published their most recent inflation snapshot. Specifically, it illustrates how inflation has outpaced City projections, which had expected a slight decrease to 3.5%.
Rachel Reeves, the Chancellor of the Exchequer, identified tackling the cost of living as a primary focus in her autumn budget presented last month. Taxes The budget contains £26 billion of tax rises. These funds will go a long way towards returning public finances to order and removing the two-child cap on benefits. From increased support for vulnerable populations to leveling up spending, the government’s fiscal strategies are aimed at easing the ratchet of costs on homes and businesses facing calamity.
Even as inflation has come down, the UK economy – it’s worth noting – was relatively recently hit with unwelcome surprises, particularly in October when the overall economy contracted 0.2%. Most importantly, consumers are unwilling to spend as the economy slows. Their reluctance comes from pump-the-brakes fears and heavy speculation on drastic tax increases in advance of the budget’s release. All this uncertainty around fiscal policies has caused many to rethink their financial commitments.
To add insult to injury, the manufacturing sector has experienced its own crisis. Jaguar Land Rover has struggled to recover from a recent cyber-attack, impacting its production capabilities and overall output in the automotive industry. The long-term impacts of this crisis have created an even tougher economic environment to navigate.
As the inflation rate eases, Threadneedle Street is anticipated to cut its base rate during its upcoming meeting on Thursday. Wall Street has already priced in a 90% chance of at least one quarter-point cut in interest rates. This forecast continues the very strong expectations for further monetary easing. The new Governor of the Bank of England is facing a pivotal interest rate decision. This decision would greatly undermine any good faith attempt to strengthen the economic recovery.