UK inflation has fallen to its lowest level for more than two years, driven largely by a drop in fuel prices. Prices rose by 3.9% in the year to November, down from 4.6% in October.
Slowing price rises for food, including staples such as pasta, milk and butter, as well as for household goods were also behind the fall. But while inflation, which is the rate prices rise at, is now well down from its peak in 2022, it is still almost double the Bank of England’s 2% target.
Falling inflation also does not mean most goods and services are cheaper, but rather prices are rising less quickly.
Grant Fitzner, chief economist at the Office for National Statistics (ONS), said that while UK inflation had eased again, “prices remain substantially above” what they were before Russia’s invasion of Ukraine.
A major impact following the outbreak of war was that global oil prices soared in 2022, pushing petrol and diesel prices to record levels.
However, oil prices have since fallen back and pump prices are now at their lowest level for more than two years, according to the RAC motoring group. A litre of unleaded costs about £1.43 on average, a price last seen at UK forecourts in October 2021.
As well as fuel, Mr Fitzner said there was a “a price drop for a range of household goods and the cost of second-hand cars”, which contributed to the lower inflation rate. “Food prices also pulled down inflation, as they rose much more slowly than this time last year,” he added.
Prices of a variety of bread products, including white and wholemeal sliced loaves, along with packs of cakes fell between October and November this year after rising a year ago, the ONS said.
Milk, cheese and egg prices rises also slowed, but olive oil, sugar and onion costs remain much higher, meaning food prices are still 9.2% more expensive than this time in 2022.
“It remains vital no one forgets that whilst inflation is falling it doesn’t mean prices are falling, and that not everyone has had an inflation busting wage increase over the past couple of years,” said Danni Hewson, head of financial analysis at AJ Bell. “Some families will be dreading this Christmas, feeling guilty about the presents they’ve been able to afford or worried about paying off debts they’ve racked up just to afford the basic festive treats,” she added.
The BBC is reporting that the last time inflation in the UK was lower than 3.9% was in September 2021 when it was 3.1%. Most economists had expected UK inflation to fall to 4.3% last month.
While the cost of living has started to ease, many households will not feel better off, especially when it comes to energy bills and borrowing costs.
Despite gas and electricity prices being lower than last year, most households will actually pay more for energy this winter than in 2022 because government support for bills is no longer in place.
The Bank of England has also put up interest rates 14 times since December 2021 to try to slow price rises. Rates are now 5.25%, a 15-year high, leading to higher borrowing costs for mortgages but also higher savings rates.
The Bank’s governor, Andrew Bailey, has ruled out cutting rates anytime soon, despite weakening economic growth.