From Morningstar:

UK consumer price inflation fell more than expected last month, with CPI rising by 3.9% annually in November, a sharp drop from 4.6% the month before. This surprise decline in inflation will increase pressure on the Bank of England to start cutting interest rates in the New Year.

Core consumer prices, which exclude energy, food, alcohol, and tobacco, rose 5.1% annually, coming in below market expectations of a 5.6% rise according to Alliance News reports.

The Bank of England remained cautious despite the decline in inflation, stating there are signs of “inflation persistence” in some areas like services and wages with no suggestion for any timescale for rate cuts.

Michael Field, European market strategist at Morningstar, believes the recent fall in inflation is encouraging, despite prices of food, alcohol, and tobacco rising by more than 10% over the last 12 months. He acknowledges that although inflation remains above the 2% target, the speed of the decline should focus the Bank of England members’ minds on rate cuts.

Rachel Winter, partner at Killik & Co, points out that while another fall in inflation is positive news for investors and signals a return to economic stability, prices remain high and the cost-of-living crisis is still a struggle for many. Core inflation isn’t falling as fast as one would hope, given Andrew Bailey’s comments which alluded to potential further rate hikes next year.

Rob Morgan, chief investment analyst at Charles Stanley, suggests that although interest rates will probably remain restrictive for most of 2024, an initial cut in the second or third quarter is a strong possibility.

James McManus, chief investment officer at Nutmeg, emphasizes that while food prices have slowed, they are still 9% higher than a year ago, making food inflation the most acutely felt. He emphasizes the challenge of reducing headline inflation to the Bank of England’s 2% target.

According to Daniel Mahoney, UK economist at Handelsbanken, the November’s CPI data coming in below expectations will reinforce market participants’ view that 2024 will see a number of interest rate cuts.



Read more: Inflation Fall Piles Pressure on Bank of England