Inflation falls to 10.7% in November...

...but remains close to a 40-year high as the cost of living continues to cripple finances.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The UK inflation rate dropped slightly to 10.7% in November, down from 11.1% in October. If this constitutes as an improvement, we’ve set a low bar as headline inflation remains close to a 40-year high.

“Britons will hope that the fall marks the start of a downward trajectory for inflation after being battered by a hike in the cost of seemingly all areas of expenditure from the food we put on our tables to how much we spend to heat our homes.

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“Shopping for food is taking a bigger bite out of household budgets, with annual food prices jumping by almost 16.5% in a year to November, up slightly from 16.4% in October. Part of what’s fuelling this are price jumps in everyday larder products, such as bread, which makes this type of inflation sticky because consumers are resigned to paying it as they form part of essential expenditure for many. The rise in food inflation was partially offset by a slowing in the rise in the cost of fruit.

“The UK has hit a tipping point where high inflation is the new normal, and our finances will likely continue to be stretched for some time to come. The Bank of England expects inflation to decelerate sharply from the middle of next year before falling back to the 2% target in two years' time.

“While the hope is the inflation rate will continue to wane, Britons are set to be hit by a new wave of inflation in April when the average energy bill will rise by £500 to £3,000 per year on average. A great deal of uncertainty remains over energy prices. The energy price guarantee scheme is set to protect customers from increases in energy costs until April 2024 if left untouched. That is a big ‘if’ because the scheme is expensive and comes at a time when the government is scrambling to plug a fiscal blackhole. The ongoing war in Ukraine also adds to the uncertainty.

“The Bank of England has stepped up the pace of interest rate increases in recent months to try to tame red-hot inflation, but with signs that inflationary pressures are easing, the bank could take its foot off the accelerator when it comes to hiking interest rates.

“The UK is facing a dangerous cocktail of high inflation, slowing economic growth and heightened financial vulnerabilities tied to high debt levels and rising interest rates, which threatens to squeeze household finances further. As such, it remains important to reassess your spending habits to get a better idea of the goods and services that are eating most into your [budget] and make the necessary adjustments to your current plan. If you don’t have a budget, now is a good time to start – and stick with it.

“There is still so much that is up in the air. As such, it may be best to hope for the best but prepare for the worst.”