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LONDON, Dec 14 (Reuters) – Britain’s inflation fell faster than expected to 10.7% in November from October’s 41-year high of 11.1%, according to official consumer price data, giving some relief to the Bank of England (BoE). It prepares to raise interest rates again.
Economists polled by Reuters had predicted that the inflation rate would slip to 10.9%. US and euro zone inflation also fell more sharply than expected last month, raising hopes that the current wave of inflation may have peaked.
“Prices are still going up, but motor fuel is lower than it was this time last year,” Grant Fitzner said.
The BoE is battling inflation that is well above its 2% target and has raised rates sharply over the past 12 months.
Economists largely expect it to raise rates again on Thursday from 3% to 3.5%, with inflation apparently peaking and providing some relief to struggling households.
“We still think the Bank will raise rates by 50bps tomorrow from 3.00% to 3.50%,” said Paul Dales, an economist at Capital Economics. “But another 75bps hike is less likely and it is possible that rates may not rise to the 4.50% peak we are forecasting.”
Last month, the BoE said Britain was headed for a protracted recession, with inflation unlikely to return to target until early 2024, while the government’s budget watchdog warned of the biggest squeeze on living standards since records began in the 1950s.
Following the latest inflation data, Finance Minister Jeremy Hunt said it was “vital that we take the tough decisions necessary to tackle inflation”.
Britain is in the midst of a wave of industrial action, particularly in the public sector where pay has not kept up with the private sector or rising prices.
Hunt has said that large public sector pay rises will slow the pace at which inflation falls.
British inflation began to rise last year, due to post-pandemic constraints on the domestic and global economy, and accelerated when European energy prices rose after Russia’s invasion of Ukraine in February.
The BoE has also said that labor shortages as well as trade and migration frictions due to Brexit have played a role in driving up prices.
Core CPI – which excludes energy, food, alcohol and tobacco prices, and which some economists believe gives a better indication of long-term price trends – fell to 6.3% in November, down from a reading of 6.5% in October.
However inflation in Britain’s services sector – which some BoE officials believe reflects the extent to which wage pressures are being passed on by firms – did not fall from October’s 30-year high of 6.3%.
Reporting by David Milliken; Editing by William Schomberg and Arun Coeur
Our Standards: The Thomson Reuters Trust Principles.
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