UK inflation fell more than expected to 3.2% in November. These figures are based on official estimates published by the Office for National Statistics. This decrease from October’s 3.6% rate was greater than City projections, which previously estimated only a small decrease to 3.5%. This surprising drop in inflation comes at a key time. The Bank of England is preparing to raise its base rate.
Rachel Reeves, the Shadow Chancellor, made tackling the cost of living a primary focus of her autumn budget last month. The budget proposed £26 billion in tax increases aimed at repairing public finances and funding the end of the controversial two-child benefit cap. These measures from Reeves are a good step toward economic relief for families with inflationary pressures starting to abate.
The inflation report continues to roil the markets. They continue to expect a 90% probability the Bank of England will lower its base interest rate by a quarter-point in next week’s meeting on Thursday. Analysts warn that less robust economic growth and an increase in unemployment rates are now a perfect storm. They think it puts them in a good position to help combat inflationary pressures.
The UK economy has been feeling the pressure in recent weeks. Then in October, it uncharacteristically shrank as consumers reduced personal consumption expenditure amid deep concerns over potential tax reforms. To say nothing of the risk the additional decline in consumer activity poses to future economic stability and growth.
A recent cyber-attack on Jaguar Land Rover has complicated the picture significantly, hindering enterprises’ efforts to recover. The challenges being experienced by this vital industry point to wider problems being felt across the UK economy.
As the Bank of England weighs up its options, increasing unemployment is one of the most powerful cards in their hands. The latest economic forecasts suggest ongoing job losses may soon have the central bank rethinking its approach to interest rates and monetary policy.