LONDON (`) — U.K. inflation, as measured by the consumer price index, fell back to its lowest level in more than two years, official figures showed Wednesday, a development that fueled speculation that the Bank of England would begin cutting interest rates interest rates are likely to increase sooner than expected.
The Office for National Statistics said inflation fell to 3.9% in the year to November from 4.6% in the previous month, the lowest level since September 2021. This fall was larger than expected in financial markets.
The agency said the biggest reason for the decline was a drop in fuel prices after rising at the same time last year. Food price inflation also contributed to the decline.
Last week, the Bank of England left its key interest rate at a 15-year high of 5.25%, where it has remained since August after the end of almost two years of rate hikes. Bank governor Andrew Bailey said interest rate policy would likely have to remain restrictive for an extended period.
The Bank of England has managed to bring inflation down from a four-decade high of over 11%, but it still has a long way to go to reach its 2% target.
Higher interest rates were aimed at a rise in inflation triggered first by supply chain problems during the coronavirus pandemic and then by Russia's invasion of Ukraine, which drove up food and energy costs.
While interest rate rises have helped combat inflation, pressure on consumer spending, particularly from higher mortgage rates, has hurt the growth of the UK economy. There is growing concern that interest rates will remain high for too long and cause unnecessary damage to the economy.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said November's surprisingly sharp fall in inflation “increases the likelihood” that the central bank will start cutting interest rates in the first half of 2024, “much sooner than they are signaling.” wanted”. far.”
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