UK INFLATION DECLINES FROM A 41-YEAR HIGH AS FUEL PRICE INCREASES SLOW DOWN

UK inflation has shown a steep drop in 16 months to 10.7% in November as momentum behind the rising cost of clothing and gasoline began to ease amid growing fears of a long recession. The drop was slightly better than expected by city analysts, who predicted that the annual rate of inflation would fall to 10.9% in October from 11.1% in October. While prices were rising, albeit at a slower rate, the increasing costs would add to the pressure on ministers to raise wages across the public sector to close the gap between earnings and rising prices.

The decline in the price of crude oil since last year, which decreased transportation expenses, was sparked by predictions of a recession through the end of 2023. As a result, fuel prices increased from 22.2% in October to 17.2% in November. The cost of used cars also helped slow down inflation. Prices increased by more than 31% between March and November 2021, but decreased by 5.8% by November 2022. In a nutshell, transportation, particularly motor fuels, accounted for the majority of downward contributions, while increases in restaurant, coffee shop, and bar costs accounted for the majority of upward, partially compensating contributions.

Households looking for relief after a spike in energy and food prices will appreciate the downturn. It won’t, however, significantly alter the discussion surrounding interest rates at the Bank of England, where officials predict that despite the economy entering a recession, inflation will continue to exceed the 2% objective well beyond 2024.

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