UK Inflation Undershoots Expectations

The latest UK inflation report was a surprise on the downside with headline inflation coming in at 10.7%, down from 11.1% in October which marked a 41-year high. A more modest inflation print was driven by the decline in cost for petrol, used cars, and prices within the leisure sector. Meanwhile core inflation which excludes energy and food prices dropped to 6.3% from 6.5% in October. Whilst the latest figures suggest that inflationary pressures are beginning to ease, it still remains uncomfortably high where consumers will continue to feel the tight squeeze on their incomes. As such, despite the moderation in inflation the Bank of England is expected to deliver a 0.5% rate hike at their next meeting to prevent inflation from becoming entrenched. This would bring the base rate to 3.5%.