- UK inflation declines
- Bank may cut rates
- Concerns over household finances
Unanticipated declines in inflation and interest rates have sparked optimism that the Bank of England may commence rate reductions earlier than previously anticipated.
The rate at which prices increase, inflation, decreased from 4.6% to 3.9% in the previous month, the lowest level in over two years.
To curb inflation, the Bank has unilaterally increased interest rates, causing millions of mortgage repayments to increase.
However, some economists believe that reductions could begin in the first half of 2024, significantly earlier than anticipated.
According to the Office for National Statistics (ONS), the unexpected decline in inflation last month was primarily attributable to declining petrol prices.
Additionally, food and domestic product price reductions played a role.
Despite a significant decline from its peak in 2022, inflation remains nearly double the 2% target set by the Bank of England. Moreover, persistently high energy expenses and borrowing costs will not alleviate the financial burdens of many households.
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“No one must forget that just because inflation is declining does not mean prices are falling,” said Danni Hewson, head of financial analysis at AJ Bell. “Additionally, not everyone has received an inflation-busting wage increase in the past couple of years.”
She added that some families will be dreading Christmas because they feel guilty about the gifts they’ve managed to purchase or are concerned about paying off the debts they’ve incurred to purchase the most fundamental holiday pleasures.
Fuel and diesel prices reached all-time highs in 2022, coinciding with the invasion of Ukraine by Russia and a surge in global energy prices.
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