The Consumer Prices Index (CPI), from the Office for National Statistics (ONS), now stands at its lowest level for more than two years.
The stock market soared to a three-month high as a result of the news earlier this week. The blue-chip FTSE 100 advanced 1 per cent, outpacing the pan-European STOXX 600, which closed 0.3 per cent higher.
Investors are now pricing in two quarter-point rate cuts by the Bank of England for the first half of next year, with the first potentially coming as soon as March. Previously, economists at the Bank of England have hinted that it will be mid-2024 before the rate is cut.
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “The sharp fall in inflation in November makes the Bank of England’s position on interest rates look even shakier. Almost every leading indicator has been pointing firmly downwards for some time, notably the monetary aggregates, but some on the Monetary Policy Committee still want to raise rates further.
“In reality, inflation is well on track to hit the MPC’s 2 per cent target in the first half of 2024, which would be at least a year earlier than the Bank has been forecasting. Deflation is now the bigger risk and interest rates are too high.
“Unfortunately, the Monetary Policy Committee has continued focus on hypothetical ‘second-round effects’ and ‘wage-price spirals’. But with pay pressures now easing too, the MPC will soon run out of reasons not to cut rates. The longer the bank waits, the greater the risks that the economy is tipped into a recession that is wholly unnecessary to bring inflation down.”
Karen Noye, mortgage expert at Quilter, said: “The positive inflation figures might potentially mean that the Bank of England is minded to reduce interest rates faster than originally predicted. This will help reduce mortgage rates and coax more people into the market and prices will resume their upward trajectory whether for good or for worse.
“We should be under no illusion though, things will still be difficult for borrowers in 2024 and anyone hoping for a return to ultra-low mortgage rates is likely to be disappointed.”
