November inflation falls but UK remains outlier in Europe

UK inflation has fallen to 3.2% in November, beating expectations and down from 3.6% in the previous month, the Office for National Statistics has announced today.

Food and drink made the biggest downward contribution, from 4.9% in October to 4.2%. This is particularly good news as food prices have big influence on inflation expectations. This strengthens the consensus view that the Bank of England will cut rates in its meeting tomorrow – possibly by more than expected, according to Lindsay James, investment strategist at Quilter.

“Grocery inflation is an important factor in the Bank of England’s interest rate setting,” she said. “A weaker economy combined with earlier policy measures has also dampened wage growth, a key input into service inflation, which has fallen slightly to 4.4%.”

On top of that, energy costs have stabilised compared to last year and are likely to fall further as providers promise to pass on the £150 saving by moving some levies to general taxation.

This latter datapoint will be an area of concern, according to Danni Hewson, AJ Bell head of financial analysis.

“The cost of eating and staying out [remained] elevated, as businesses attempt to deal with last year’s Budget measures, which increased labour costs,” she said.

“While the energy price cap will nudge up a tiny bit in January, the price help for households announced in this year’s Budget should provide a significant counterweight and rising unemployment is already a factor keeping pay rises at a more subdued level.”

While tomorrow’s decision could be an easy one, what the Bank does after that is of more interest as inflation remains well above the Bank of England’s 2% target while economic growth is grinding to a halt.

The Bank’s own projections have the Consumer Price Index (CPI) at 2.5% by the end of 2026. However, these forecasts also suggest flatlining GDP growth and a stable rate of unemployment, with risks now arguably growing on the downside.

James said: “Should the UK slide into recession, this could accelerate the downward path of inflation and with it the potential for rate cuts, but at considerable cost not only to the country but also to its political leaders. The Christmas cheer has run out for the UK economy”.

The cost of living isn’t easing, and savers have it better than consumers. The Moneyfacts Average Savings Rate currently sits at 3.39%, which is comfortably above inflation, said Caitlyn Eastell, spokesperson at Moneyfactscompare.

There are currently 1,512 savings accounts that beat inflation, but there will be more benefits in 2026 than there have been this year.

“This year inflation has averaged 4.01% and the Moneyfacts Average Savings Rate at 3.50%, meaning cash savings have failed to keep pace. For someone with £10,000, this equates to being around £50 worse off in real terms,” Eastell said.

“However, the Office for Budget Responsibility forecasts inflation will average around 2.5% in 2026 and, if savings rates stayed the same, savers would gain £100 in real terms.”

It’s therefore “as crucial as ever” that savers pay closer attention to how to get their money working its hardest.

“Loyalty is not always incentivised, and one in four savers are missing out because they have never switched savings accounts,” she said. “The markets are most generous to those who proactively search for the highest paying deals.”

The table below highlights the highest-paying deals.

Savings market analysis

Source: Moneyfactscompare