United Kingdom: Inflation undershoots market expectations in November
Inflation came in at 3.9% in November, which was down from October’s 4.6%. November’s figure marked the lowest inflation rate since September 2021 and was well below forecasts of 4.4%, but was still almost double the Bank of England’s 2.0% target. The decline was driven by moderating price pressures for recreation and culture and for food and non-alcoholic beverages.
Annual average inflation fell to 7.9% in November (October: 8.4%). Meanwhile, core inflation fell to 5.1% in November, from the previous month’s 5.7%.
Finally, consumer prices dropped 0.24% in November over the previous month, swinging from October’s 0.01% rise. November’s result marked the weakest reading since July.
On the monetary policy implications, Nomura analysts said:
“We think this is promising news for the BoE, but the Bank cannot claim victory yet. Seasonally adjusting is always a challenge, but it looks like the momentum of services price inflation is still too high and the BoE will need to see further progress before it can start to contemplate rate cuts. Therefore, we remain of the view that Bank Rate will remain on hold at 5.25% until August 2024.”
Goldman Sachs analysts are more dovish:
“Recent data on key indicators of inflation persistence have surprised the BoE’s projections meaningfully to the downside, and we pull forward our first BoE cut to May (vs June previously).”