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UK inflation rate drops further than expected to 3.9% in November

UK inflation rate drops further than expected to 3.9% in November Photo: UK inflation rate drops further than expected to 3.9% in November (GettyImages)

In November, UK inflation fell sharply to 3.9%, a decrease from 4.6% in October, prompting speculation about potential interest rate cuts by the Bank of England in 2024, according to The Financial Times.

The decline in inflation, which is the lowest since September 2021 and below the 4.4% forecast by economists, was influenced by reduced prices in food, fuel, and recreation. Core inflation, excluding energy and food, fell to 5.1% from 5.7%.

The pound dropped slightly against the dollar following the announcement.

The Bank of England, which maintained interest rates at 5.25%, is under pressure but remains cautious, waiting for clear indications from the labor market before adjusting rates.

Chancellor Jeremy Hunt acknowledged the halving of inflation and the government's continued focus on the cost of living pressures. At the same time, Richard Carter from Quilter Cheviot expressed cautious optimism about inflation, noting the UK's economic challenges, including a 0.3% GDP contraction.

James McManus of Nutmeg pointed out the stubbornness of core inflation and the need for further reduction to meet the Bank of England's 2% target, particularly in food prices.

BoE Deputy Governor Ben Broadbent noted the challenges of interpreting volatile data, particularly in wage growth, which affects decisions on rate changes.

Inflation challenge

The background of this occasion involves the Bank of England's efforts to manage high inflation, which led to raising interest rates to a 15-year high.

The Bank is comparing its inflation situation with those in the US and EU, noting a more persistent inflation problem in the UK.

The Bank of England had been working to steer inflation towards its 2% target amidst a complex economic environment marked by stagnation and subdued growth. The unexpected decline in inflation, while providing some relief, leaves uncertainties about the UK's economic recovery and the Bank's future monetary policy actions.

Chancellor Jeremy Hunt acknowledged the positive direction of the inflation data but emphasized the ongoing struggles of families with high prices, indicating the government's focus on addressing the cost of living pressures.

Also, we recently wrote that US economic analyst Harry Dent predicts a significant market crash in 2024.