U.K. inflation fell by more than expected in November, easing pressure on BoE

By Geoffrey Smith

Investing.com -- U.K. inflation fell by more than expected in November, easing the pressure on the Bank of England to keep raising interest rates against the backdrop of a recession.

The consumer price index rose by 0.4% on the month, down from an alarming 2.0% in October that was caused by the adjustment of regulated household energy prices. Analysts had expected an increase of 0.6% ahead of time.

That brought the year-on-year rate down to 10.7% from 11.1%.

The Office for National Statistics said the modest easing in prices was due largely to falls in petrol prices and in prices for used cars, with apparel, hotel prices, and games and toys also putting downward pressure on the index. The largest upward effect came from alcohol consumed at restaurants and pubs.

Stripping out volatile fuel and energy components, the core CPI rate also eased by more than expected, rising only 0.3%, rather than the 0.5% forecast. In annual terms, core inflation is now running at 6.3%, down from 6.5% last month.

The figures come a day before the Bank of England is set to announce its latest policy decisions. The Monetary Policy Committee is expected to split at least three ways on what action to take, with several members shying away from further big increases in interest rates at a time when inflation appears to have already peaked.

Samuel Tombs, chief U.K. economist with Pantheon Macroeconomics, said the figures appeared to reflect a genuine easing of price pressures rather than any statistical quirk linked to Black Friday promotions, which began earlier than usual this year.

Tombs said there are growing reasons to see inflation easing further in the coming months, saying that he expects inflation to fall to 8% by April and to 3% by the end of next year.

He argued that shipping costs have fallen to just one-fifth of their level a year ago, while the annualized producer price inflation over the last three months was only 8.4%, down from a peak of 21.6% in June. Barely a day goes by without a U.K. retailer publishing a warning of excess inventory and softening demand, meanwhile.