A surprise fall in inflation in November has raised hopes that the Bank of England will begin cutting interest rates sooner than expected.
Inflation – the rate prices rise at – fell from 4.6% to 3.9% last month, the lowest for more than two years.
The Bank has repeatedly increased rates to try to control inflation, driving up mortgage repayments for millions.
But some economists think it may start cutting them in the first half of 2024, much earlier than previously forecast.
The Office for National Statistics (ONS) said that falling petrol prices were largely behind the surprise drop in inflation last month.
Slowing prices for food and household goods also contributed.
But while inflation is well down from its peak in 2022, it is still almost double the Bank of England’s 2% target, and many households will not feel better off as energy bills and borrowing costs remain high.
“It remains vital no one forgets that whilst inflation is falling it doesn’t mean prices are falling, and that not everyone has had an inflation busting wage increase over the past couple of years,” said Danni Hewson, head of financial analysis at AJ Bell.
“Some families will be dreading this Christmas, feeling guilty about the presents they’ve been able to afford or worried about paying off debts they’ve racked up just to afford the basic festive treats,” she added.
Petrol and diesel prices hit record levels in 2022, after Russia invaded Ukraine and global oil prices surged.
But pump prices have fallen back and are now at their lowest level for more than two years. A litre of unleaded costs about £1.43 on average, a price last seen at UK forecourts in October 2021.
Meanwhile, the prices of a variety of baked goods, including white and wholemeal sliced bread, along with packs of cakes fell between October and November after rising a year ago.
Milk, cheese and egg prices rises also slowed, but olive oil, sugar and onion costs remain much higher, meaning food prices are still 9.2% more expensive than this time in 2022 .
The last time inflation in the UK was lower than 3.9% was in September 2021 when it was 3.1%. Most economists had expected UK inflation to fall to 4.3% last month.
But while the cost of living crisis may be starting to ease, many households and businesses remain under pressure. (BBC)