Inflation fell to 10.7% in November, down from 11.1% a month earlier, according to official figures from the Office for National Statistics (ONS).
The largest upwards contribution to inflation last month came from rising prices in restaurants, cafes and pubs.
While falling oil prices helped the overall figure to come in at a lower level than predicted by market analysts.
Despite the decline in inflation the increase in the cost of living still remains close to a 40-year high.
Paul McGerrigan, CEO at fintech broker Loan.co.uk, said: “Inflation remains stubbornly high, however, there are economic signs that this has now peaked, and the expectation is that numbers will continue to fall gradually into 2023 as new food and energy supply deals are brokered and some of the big government moves start to take effect.
“Prices at the pumps have in fact dropped in the last month but those drops have yet to filter through into the figures due to the lag in reporting.
“Stability in No. 10 has helped to calm the markets and it feels like the wheels are slowly being reattached to the bus. It’s important that the MPC proceeds with caution tomorrow. Whilst its vital to get inflation under control its fundamental not to choke growth and so pushing rates to high and too quickly would not be advised.
“Interest rate rises have already poured cold water on the property market and while a slow-down is positive a significant drop in house prices is not. For consumers considered financial planning remains vital to navigate the short-term storm of high prices, high interest rates and real-terms decline in income.”
Simon Webb, managing director of capital markets and finance at LiveMore, added: “Inflation fell in November to 10.7% from 11.1% with the drop in fuel prices being a contributory factor. However, food prices are still worryingly high, going up by 16.5% and slightly higher than the 16.4% in October, which is the highest rise in 45 years. “
“The hope is that inflation peaked in October and is now on a downward spiral but there is concern about the rise in the energy price cap in April 2023, which could see inflation rise again.”
“The Monetary Policy Committee meets tomorrow and will no doubt raise base rate to try to curb inflation even more, with most people predicting a 0.5% rise. As we move into 2023 it will be a tough time for many people having to tighten their belts.”
Further reaction
Philip Dragoumis, director and owner at Thera Wealth Management:
“It’s too early to call a peak in UK inflation but at least now it is heading the right way.
“Price rises in restaurants, cafes and bars provided the highest upward pressure in November and the feeling is that companies are still trying to keep their profit margins intact (and even increasing them) by passing on absolutely all input cost rises.
“We need to see a few more months of data before we call a peak in the rising interest rate cycle but we get the impression that we are not far off. There are reasons to be cautiously cheerful.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“Though inflation came down, it will be disappointing for borrowers, as the reduction in UK inflation didn’t match that of the US yesterday.
“This will mean that the Bank of England will push forward with a further 0.5% increase in rates in its flawed plan to get inflation under control. This proves the central bank got it wrong.
“Inflation will not peak at over 13%, it’s already starting to fall. Markets will react negatively to this today, and I expect to see further losses all week. All eyes will be on what the US central bank does today. That will have a greater impact on markets. We’ll get a glimpse of how central banks around the world will react to falling inflation.”
Justin Moy, managing director at EHF Mortgages:
“The small drop in inflation will not influence base rate decisions, unfortunately. A further base rate rise is totally expected, and priced into both mortgage and savings rates, and most are predicting an increase of 0.5%.
“For mortgage borrowers, this on its own will only affect a relatively small number of borrowers, given the vast majority are still on fixed rate deals, we may just see the recent fixed rate reduction trend slow a little.
“The difference between variable and fixed rates continues to narrow, which is quite normal.”
Lewis Shaw, owner and mortgage broker at Riverside Mortgages:
“At long last, inflation is headed in the right direction and while this step downwards is positive, we’re still aeons away from where inflation is meant to be according to the mandate set out for the Bank of England.
“Rather than policymakers easing off and not hiking the base rate on Thursday, this could well spur them on, secure in their knowledge that tightening monetary policy is having an impact.”
Gary Boakes, director at Verve Financial:
“A very small step in the right direction, but this is likely to have no impact on the Bank of England vote tomorrow and we are fully expecting another 0.5% base rate rise.
“However, with lenders having already priced in December’s rate increase, it won’t be until the 2nd of February meeting that we get a true indication of mortgage rates for early next year.”
Mike Staton, director at Staton Mortgages:
“This drop will allow the Bank of England to give themselves a false pat on the back. This is the second time we have seen a dip in inflation since the BoE started increasing its base rate but these have also coincided with huge drops in fuel prices.
“Hopefully, we’ll see further drops as people slow down spending after Christmas and this will prompt the BoE to lower the base rate and give some overdue relief to homeowners.
“The BoE’s plan of increasing the base rate to reduce spending just hasn’t worked. It’s been a ridiculous attempt to try and show the UK that they have some form of control on inflation, which quite clearly they haven’t.
“All they have done is apply misery to millions of homeowners. It’s time to go back to the drawing board and look at how to help families reduce bills rather than risk making them homeless.”
Wes Wilkes, CEO at IronMarket:
“Bringing a knife to a gunfight, the Bank of England must maintain its aggressive stance for this week’s rate decision at least.
“The UK economy is so fragile, they will break it, and markets will counter any positive pricing from a lower inflation print with the larger negative effects on the economy of raising rates into a recession.
“We may be seeing peak rates imminently, which potentially brings UK rate cuts forward to as early as the second half of 2023. Savers, lock in your rates, and borrowers, sit tight.”
Carla Hoppe, founder at Wealthbrite:
“Savers, borrowers and consumers are unlikely to celebrate because inflation remains the grinch that stole an affordable Christmas. Until the headlines start to be felt in better living standards, I’d be surprised if anyone is out sharing this good economic news with their mates.
Gaurav Shukla, director at home me:
This is great news regarding a dip in inflation but isn’t anywhere near the amount we need. For savers, it will make a slight difference as they won’t be losing as much as before, in real terms.
“For people who save in investments where there is likely to be a higher return, they will potentially see a benefit as they may be breaking even or quite possibly making a little profit.
“The Bank of England will still need to raise the base rate to control inflation further. We aren’t where we need to be as an economy but let’s hope this is the start of the recovery period. Let’s enjoy the good news before Christmas.”
