The Consumer Prices Index (CPI) grew by 2.1 percent in the year to November, which was a slight drop from the previous month’s 2.2 percent.

The main downward pressure on prices in the UK economy came from food and the utilities (gas and electricity) sectors said the ONS, with the main offsetting upward pressure coming from transport and some parts of the recreation & culture sector.

The new measure of inflation that includes homeowner-occupier costs (CPIH) grew at 1.9 percent in the year to November, again marginally down on October’s figure, which was 2 percent.

CPI 12 month inflation rate graph to Nov 2013

Click Graph to Expand

Carl Astorri, senior economic adviser to the EY ITEM Club, commented:

CPI inflation fell further in November, to 2.1%, edging ever closer to the Bank’s remit of 2%. And with the inflation rate expected to remain broadly at this level going forward, the Bank appears to have successfully managed price stability over the past few months despite some difficult growth dynamics, unconventional policy at an international level and relatively erratic energy price movements.

While wage growth does still lag behind the pace of price increases, the gap is quickly closing, and we expect real wages to begin to rise in 2014. This should help to support consumer spending over the next year, and may soothe fears that the recent consumer-led dynamic of growth in the economy is unsustainable.

Energy prices are expected to tick-up in December on the back of price rises across a number of the big suppliers. But this only accounts for around 5% of the basket used to measure CPI inflation. Plus, the price rises are expected to be smaller than those seen in 2012. Producer prices, which increased by just 0.8% in November, also suggest that CPI inflation is likely to fall below 2% over the next 12 months.

Caxton FX analyst, Sasha Nugent, said:

Today’s inflation figure confirmed price pressures continue to ease, and supported comments made from BoE member Weale regarding inflation. The BoE now have even more room to maintain their dovish stance and keep interests rates low to help absorb slack in the economy. We may have a situation in 2015 were unemployment is at the 7% threshold, but the central bank can still maintain easy monetary policy. There is less pressure on the BoE to raise rates and the pound will take a bit of a hit on the back of this.

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