U.K. Inflation Unexpectedly Cools to 3.9 Percent, Lowest in 2 Years

featured image

Other measures of inflation that are used to assess how deeply price pressures are embedded in the economy also eased. Core inflation, which excludes energy and food prices that are more volatile and heavily influenced by international markets, fell to 5.1 percent in November, from 5.7 percent the previous month.

Services inflation — a gauge of company wage costs — cooled slightly, to 6.3 percent.

Inflation has moderated significantly from its peak last year, when the rate climbed above 11 percent, its fastest pace in four decades. As household budgets were squeezed by high energy and food costs, the Bank of England was in the midst of an aggressive series of interest rate increases to squash inflation.

Recently, the government has argued that the British economy has turned a corner. Inflation is running lower than average wage growth, which, for some, should help ease a prolonged cost of living crisis.

“With inflation more than halved we are starting to remove inflationary pressures from the economy,” Jeremy Hunt, the chancellor of the Exchequer, said in a statement. “But many families are still struggling with high prices so we will continue to prioritize measures that help with cost of living pressures.”

The pain of higher inflation is still being felt by many households. Food prices are up 27 percent compared with two years ago and household energy bills are set to rise in January. The impact of higher interest rates is still filtering through the economy, as homeowners pay higher mortgage rates and companies face higher funding costs.

Inflation in Britain remains about double the Bank of England’s 2 percent target and despite the unexpectedly large slowdown in November it is still relatively high compared with its Western European neighbors.

Bank of England policymakers said last week that they expect to keep interest rates high for a while, and that it was too early to talk about cutting interest rates even though inflation is slowing and the economy is expected to flatline until 2025. One thing that rate setters are focused on is the persistent strength of wage growth: Average pay was up about 7 percent in the three months through October, compared with a year earlier.

This week, Ben Broadbent, a deputy governor at the central bank, warned that policymakers needed to see a “more protracted and clearer decline” in the official wage data before they could be sure this source of inflationary pressure had eased.

Source link

Share on Google Plus
    Blogger Comment
    Facebook Comment


Post a Comment