Inflation in the United Kingdom tumbled. The overall index did drop 0.4% from the prior month. This reduction is the most significant one-time decrease since September 2024. It is the second consecutive month of declining inflation rates. This decline occurs at a time of continuing economic uncertainty. The UK economy has not grown at all since the first week of July.
The last consumer inflation figures give a stark warning that the UK economy risks being trapped in a vicious stagflation cycle. Consumer spending and growth have ironically continued to grow weaker, worsening worries about the overall economic picture. The government’s recent changes to employment laws haven’t made things any clearer. The proposed amendments reduce the length of employment required for an employee to bring a wrongful dismissal action. Now, they are able to sue after only six months instead of two years, which could greatly accelerate challenges in the jobs market.
Market analysts now predict that the Bank of England will be forced into two interest rate cuts over the course of next year. This comes after growing concern about the country’s economic trajectory. Expectations for rate cuts are beginning to change, at last. This adjustment is a recognition of the need to adjust to the deepening bad economic news. Despite inflation recently falling in the UK, the longer-term economic picture for the country is far from rosy. Low growth expectations and difficult circumstances for consumer spending are exacerbating the situation.
November’s consumer price report made one thing abundantly clear— inflation is going down. That drop is directly linked to the continued softening of consumer spending. The UK has been through a sustained hit to consumer confidence. With it, spending power has eroded—the burden of which has further strained attempts to resuscitate the economy. The picture for the Pound doesn’t look so hot either, as currency markets react to this toxic macro-economic soup.
The reality of the UK economy is far worse than the dishearteningly low bar the economists have set. Now, more than ever, observers are worried that absent major policy changes, the country could be doomed to a state of persistent economic malaise. The persistent decline in inflation is encouraging news, separate from any other considerations. It points to more insidious problems rotting the economy from the inside out.