Inflation set to ease back again but rate cuts remain some way off, say experts
The ONS is set to show the rate of inflation falling to 4.3% in November, down from 4.6% in October, according to most economists.
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Your support makes all the difference.UK inflation is expected to be revealed easing back further when official figures are released on Wednesday, but experts caution interest rate rises remain some way off for hard-hit homeowners despite slowing price hikes.
The Office for National Statistics (ONS) is set to show the rate of Consumer Prices Index (CPI) inflation falling to 4.3% in November, down from 4.6% in October, on the back of slower increases in food and petrol prices, according to most economists.
It is unlikely to match the dramatic fall seen in October, when it fell from 6.7% in September, enabling Prime Minister Rishi Sunak to declare an early victory on his goal to halve inflation by the year end.
The Bank of England has been quick to caution that the job of bringing inflation back to its 2% target is far from done and has poured cold water on mounting hopes of an imminent interest rate cut.
For the Bank of England, the downtrend in inflation is likely to be perceived as too gradual to allow for rate cuts in the very near term, especially considering the jobs market still looks reasonably robust
Economists are forecasting that the slowdown in price rises will be far more gradual in the coming months, with October’s steep drop largely caused by the significantly lower energy price cap this year compared with the £2,500 limit seen a year earlier.
With energy price falls less steep and other cost pressures remaining, the Bank is forecasting that inflation will not return to target for another two years.
Sandra Horsfield, an economist at Investec, said: “Declaring victory over inflation remains a more remote prospect in the UK than in the US or indeed the eurozone, both of which are visibly closer to target inflation, with lower ‘core’ inflation too.
“The pain this entails for households is clear, which the Bank of England is all too aware of.
“This month, we expect to see further evidence that inflation is heading back down again.
“But that progress is likely to be fairly gradual.”
She is not expecting the Bank to look at trimming rates – currently at 5.25% – until next summer at the earliest.
Ms Horsfield added: “For the Bank of England, the downtrend in inflation is likely to be perceived as too gradual to allow for rate cuts in the very near term, especially considering the jobs market still looks reasonably robust.
“We continue to expect a first move down in interest rates only in August 2024.”
But recent data showing that wage growth slowed at the fastest pace for two years in the three months to October has reinforced forecasts for rate cuts, with financial markets now pencilling in just over three reductions next year, starting in June.
This is still not enough to ease Bank concerns over stubborn inflation pressures in the economy and policymakers have stepped up efforts to push back on rate cut expectations.
Deputy Bank governor Ben Broadbent said earlier this week that there needs to be clearer evidence that wage growth is slowing before policymakers can think about cutting rates – a sentiment echoed by fellow deputy governor Sarah Breeden on Tuesday.