Inflation has fallen more sharply and sooner than expected, as 2023 gives way to 2024.
It fell to 3.9% in the year to November, dropping more than anticipated from 4.9% in October, according to the latest data from the Office for National Statistics (ONS).
Consumer prices index (CPI) inflation has now fallen by nearly 7%, having stood at 10.7% in November 2022.
It was originally forecast to come down to 4.4% by November 2023, so quite a bit more than the powers-that-be had imagined.
The contributions to this change have come from transport, recreation and culture, plus food and non-alcoholic beverages, according to the ONS.
It also looks as if we shall see cuts in interest rates and earlier than expected. Inflation is still double what it ought to be and maybe we shall see that target broached again over coming months, if lower commodity and energy prices filter through.
The ONS has reported prices for some goods fell, with the cost of raw materials dropping by 2.6%, transport costs falling by 1.4% and the cost of goods leaving factories seeing a small decline of 0.2%.
However, a 10% increase in the Living Wage (more for younger workers) following the Autumn Statement will add to prices next April and that will be passed on and have an effect on what people spend – and potentially drive inflation.
Meanwhile, economic growth for the UK was revised so Q2 was a mere 0% and Q3 -0.1%.
The good news about this is it suggests higher interest rates are constraining spending and thus inflation – good. However, we all want economic growth, which won’t exist if confidence is impacted too.
Just to confound though, on the news, Sterling rose rather than fell which it ‘should’ have done, on the likelihood of lower interest rates… whilst -0.1% sounds bad, it matched France, Germany and Denmark and the Eurozone average and beat several others including Japan at -0.7%.
But in November, government borrowing was a ‘record’, so not such positive news… have a look at the US Dollar versus Sterling (down 16.5% since the trough in September 2022) – interesting developments there – positive for imported inflation too.
Oil is beginning to track back down towards $70 a barrel again too.
Housing prices
Meantime, ONS data has shown UK housing prices dropped by 1.2% in October, which means the average UK house price stood at £288,000 in October, a level £3,000 lower than a year ago.
It has varied from region to region, so while London saw a fall of 3.6%, the North East saw a small 0.2% increase, with other areas somewhere in between.
From a buyer’s perspective, whilst this current ‘flat’ market might suggest it’s the time to buy (with the trend towards falling interest rates) we maintain that prices remain far too high generally.
For those with more property than just their home, now may be a time to re-evaluate how your wealth is deployed, in search of greater diversity and less risk concentration.
We wish everybody a Happy New Year, may it be a prosperous and peaceful one for you and your families.
