UK inflation slowed in November

Posted on December 13th, 2011 | Categories - News

The Office for National Statistics (ONS), reported that the rate of Consumer Price Inflation (CPI) fell to 4.8% in November from 5.0% in October.

The Retail Prices Index (RPI), which includes mortgage interest payments, also fell, from 5.4% to 5.2%.

The falls were partly due to a slowdown in the rate that the costs of food and non-alcoholic drinks are rising in price.  A one penny per litre fall in the cost of petrol between October and November also helped slow the rate of inflation, as did lower rises in the cost of clothing and furniture.

This decrease in the rate of inflation was welcomed by many, including Victoria Cadman, economist at Investec who said: “Today’s data confirmed that inflation has passed its peak and is now on a downward track.”

Vicky Redwood of Capital Economics added: “There is still a lingering risk that inflation picks up again in December, but come January, when the VAT rise drops out – it should start to fall like a stone.”

She continued: “We still think that inflation will be below its target by the autumn, before dropping to 1% or lower.”

Bank of England inflation target

The Bank of England has previously said that it expects inflation to drop “sharply” towards the 2% target next year; inflation has been above the Bank’s target for the past 24 consecutive months.

The drop in the rate of inflation in November, when added to the slowdown in October, could be seen as signs that the Bank are finally starting to predict inflation movements with a greater degree of accuracy.

Household finances remain tight

Despite the slowdown in the rate of inflation, household finances will remain tight as employee pay growth is just 2.3% per annum.

Markit chief economist, Chris Williamson said: “Despite the easing, the rate of inflation signals more pain for households in the coming months, as prices for goods and services continue to rise more than twice as fast as incomes.”

Savers

The news that the rate of inflation is slowing coupled with the predictions for further falls in 2012 is potentially good news for savers.

Over the past couple of years savers have been hit with the double whammy of high inflation and low interest rates; meaning that even the best savings interest rates  have seen the real value of savings eroded.

With the prospect of lower inflation as we move into 2012 savers may start to benefit from a real return.