Inflation Falls in November

Data from the Office for National Statistics has confirmed that inflation fell in November for the second month running. The Consumer Prices Index, which is the official measure of annual inflation, fell from 5pc in October to 4.8 in November, in line with the predictions of many analysts.

The ONS said that competitive food prices in supermarkets and a fall of 1p per litre of are the biggest contributors to the drop in inflation, doing enough to offset the rising costs of heating, alcohol and tobacco.

Victoria Cadman of Investec stated that: “Today’s data confirms that inflation has passed its peak and is now on a downward track”. The fall will be a relief for the Bank of England, which has been attempting to wrestle inflation back under control for the past 2 years.

Inflation, however, still remains well above the target rate of 2 per cent and is still moving at more than double the pace of the average wage increase, meaning that many households will still be feeling the pinch over Christmas and we will be unlikely to see much positive effect on growth.

Chris Williamson, chief economist at Markit, said: “Consumer spending accounts for around two thirds of all spending in the UK economy, so this will act as a substantial dampener on economic growth.” “This; combined with public spending cuts and falling demand for UK exports means there is a strong chance the UK will fall back into recession in the early part of 2012.”

The Bank now predicts that inflation will continue to fall, reaching 1.5 per cent by the middle of next year and remaining below the 2 per cent target until 2014 at the earliest..

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