The Bank of England is under increasing pressure to help homeowners and cut interest rates after inflation fell to its lowest rate in two years.
Latest figures show it has slowed to 3.9 per cent, well below Rishi Sunak’s target of 5 per cent by the end of the year.
Work and pensions secretary Mel Stride said the inflation fall could allow the Bank of England to ease interest rates and aid those struggling with mortgage costs.
While he emphasised that the bank was independent, he added “if inflation comes down faster than expected then that does take some pressure off the Bank of England in terms of keeping interest rates higher, which of course in time and in turn feeds into mortgage rates.”
Falling petrol prices helped drive the larger than expected fall in inflation, which the prime minister hailed as “good news for everyone in this country”.
Most economists had been expecting a dip to 4.3% last month.
However, the current rate is still well above the Bank of England’s goal of 2 per cent.
Prime Minister Rishi Sunak hailed the fall in inflation as ‘good news for everyone in this country’, and Chancellor Jeremy Hunt said the UK economy is ‘back on the path to healthy, sustainable growth’ (Ian Forsyth/PA)
Labour warned that more than a million people face higher mortgage payments next year “after the Conservatives crashed the economy”.
Economists suggested that markets were pricing in interest rates cuts by May, and perhaps as early as March, as pressure intensifies on the central bank.
Matthew Ryan, from financial services company Ebury: “The first 25 basis point cut is now fully priced in for the bank’s May meeting, with a decent chance of a start to cuts in March.”
James Smith, developed markets economist at ING bank, said: “Markets are right to be pricing a number of rate cuts for 2024 … starting in May.”
Shadow chancellor Rachel Reeves with party leader Sir Keir Starmer (Peter Byrne/PA)
Responding to the inflation figures, the chancellor Jeremy Hunt said: “With inflation more than halved we are starting to remove inflationary pressures from the economy.
“Alongside the business tax cuts announced in the Autumn Statement this means we are back on the path to healthy, sustainable growth.
“But many families are still struggling with high prices so we will continue to prioritise measures that help with cost of living pressures.”
Shadow chancellor Rachel Reeves said: “The fall in inflation will come as a relief to families. However, after 13 years of economic failure under the Conservatives, working people are still worse off.
“Prices are still going up in the shops, household bills are rising, and more than a million people face higher mortgage payments next year after the Conservatives crashed the economy.”
