Inflation slows to lowest level in two years

Inflation rose at its lowest level for more than two years in November, giving hope that the cost of living crisis may have passed its peak.

The 3.9% increase in the consumer price index continues the downward trend that has been happening for most of the year, from the 40-year highs seen a year ago.

Today’s figure was driven by lower fuel prices – which are down more than 10% on a year ago – and much slower growth in food prices, especially bread and cereals.

The rate of inflation is at its lowest level in two years (Source: ONS)

ONS chief economist Grant Fitzner said: “Inflation eased again to its lowest annual rate for over two years, but prices remain substantially above what they were before the invasion of Ukraine.

“The biggest driver for this month’s fall was a decrease in fuel prices after an increase at the same time last year. Food prices also pulled down inflation, as they rose much more slowly than this time last year.”

However the ONS highlighted that the overall price of food and non-alcoholic beverages is up by around 27% in the last two years.

“Although the annual inflation rate for food has been slowing, food prices are still high following relatively sharp rises over the latest two years,” it said.

Inflation peaked in October 2022 at 11.1% during a run of seven months that came in above 10%. The rate of price increases was still at 6.7% in September, but has dropped significantly in the two months since.

Danni Hewson, head of financial analysis at AJ Bell, said: “Let’s not be churlish, the latest UK inflation numbers deliver a welcome shot in the arm for the UK economy.

“Headline CPI fell to 3.9% in November, less than double the Bank of England’s two percent target, which will give markets faith that interest rates will follow the trajectory they’ve already bought into.

“Looking at rate expectation this morning there’s growing confidence cuts to the base rate could begin as early as March and that by this time next year the economic landscape will look very different – more than one in 10 are now betting rates could fall back to below 4% by next December.”