UK inflation is set to ease further in November, with economists forecasting a drop to 3.5% from October's 3.6%. The decline comes as falling food prices are expected to offset rising hotel costs, bringing welcome relief ahead of a crucial Bank of England interest rate decision.
The Consumer Prices Index rate has remained elevated throughout the summer, with October marking the first decline in five months. Rob Wood and Elliott Jordan-Doak, economists for Pantheon Macroeconomics, expect «food prices falling month-on-month» to «drag inflation down».
However, they warn that a «chunky hotel price rise» alongside persistent high inflation in catering, leisure, and hospitality is «likely as continued strong labour costs – in part due to payroll tax hikes – boost prices».
Bank of England decision looms
The timing is significant. The Bank of England will announce its interest rate decision just one day before the next inflation data is published. Most economists expect rate cuts before Christmas, driven by the combination of slowing inflation, rising unemployment, and a flatlining economy.
Sanjay Raja, chief UK economist for Deutsche Bank, projects continued progress. «After peaking in August, we expect inflation to continue on its downward trajectory,» he said. He attributes the improved outlook to policy changes and energy costs: «Autumn Budget measures have lowered our projections for inflation for next year – particularly in the spring. Lower energy prices have also helped lower our projections.»
Path to target
The Bank of England's inflation target stands at 2%. Raja expects the rate to approach this benchmark soon: «We see CPI landing pretty close to target from spring next year before more sustainably returning to target in 2027.»
The anticipated moderation in inflation is expected to encourage policymakers to ease borrowing costs, potentially providing relief to households and businesses struggling with high interest rates.
Note: This article was created with Artificial Intelligence (AI).
