Please see below article received from Evelyn Partners this afternoon, which provides an economic update as we approach Christmas and the end of 2023.
What happened?
UK November annual headline CPI inflation was reported at 3.9% (consensus: 4.4%), its lowest pace in over two years, versus 4.6% in October. In monthly terms, CPI fell 0.2% (consensus: +0.1%), compared to remaining flat at 0% in October.
November annual core CPI (excluding food, energy, alcohol and tobacco) was 5.1% (consensus: 5.6%), versus 5.7% in October. In monthly terms, core CPI was -0.3% (consensus: +0.2%), versus 0.3% in October.
What does it mean?
Today’s encouraging inflation print confirms the continuation of the downward trend in inflation. Just over a year on from headline CPI peaking at 11.1% in October 2022, it has since decelerated by over 7% points, with much of that deceleration in the headline rate coming from lower energy prices in the transport (i.e. fuel) and housing and household services (i.e. gas and electricity) categories. What was even more promising was the downward movement in core inflation, which has decelerated to its lowest rate since January 2022.
As it stands, Brent crude oil prices are now down roughly 4% for the year despite heightened geopolitical risk in the Middle East and OPEC+ output cuts. This reduces the risk of upside in retail petrol and diesel fuel prices. This weakness in oil prices has been reflected in the CPI basket for transport which decelerated by 1.7% in November. On an annual basis this segment of the economy is now exhibiting deflation, with the 12-month inflation rate turning negative.
Looking elsewhere in the divisional breakdown, goods inflation has now decelerated to 2.0% on an annual basis. While services, although slowing, remains more resilient at 6.3% for the last 12 months.
Food and non-alcoholic beverages continue to put pressure on the wallets of households, with this segment exhibiting the highest monthly inflation rate for any category at 0.3% for November. On an annual basis, prices in this segment have risen by 9.2%.
Bottom Line
With both headline and core CPI inflation slowing at a faster rate than expected in November, this should reassure policy setters at the Bank of England that high interest rates are having the desired effect of materially decelerating inflation. The Monetary Policy Committee should now be able to focus on when to cut rates, rather than if additional tightening is required. Money markets are currently expecting these interest rate cuts to materialise in the second quarter of 2024.
Please check in again with us soon for further relevant content and market news.
Chloe
20/12/2023