Inflation has fallen to 3.9% in the year to November, dropping further than expected from 4.9% in October, the Office for National Statistics (ONS) has revealed.

Year-on-year, consumer prices index (CPI) inflation has now fallen by nearly 7%, having stood at 10.7% in November 2022.

Last month, economists polled by Reuters had forecast a fall in the annual CPI inflation rate to 4.4%.

The ONS stated that the largest downward contributions to this change came from transport, recreation and culture, and food and non-alcoholic beverages.

Furthermore, prices for some goods fell, with the cost of raw materials dropping by 2.6%, transport costs falling by 1.4% and the cost of good leaving factories seeing a small decline of 0.2%.

Head of financial analysis at AJ Bell, Danni Hewson, commented: "Let’s not be churlish, the latest UK inflation numbers deliver a welcome shot in the arm for the UK economy. Headline CPI fell to 3.9% in November, less than double the BoE’s 2% target, which will give markets faith that interest rates will follow the trajectory they’ve already bought into.

"Looking at rate expectation this morning there’s growing confidence cuts to the base rate could begin as early as March and that by this time next year the economic landscape will look very different – more than one in 10 are now betting rates could fall back to below 4% by next December.”

However, despite the more than expected drop, it is not as steep as the drop in CPI between September and October, which fell from 6.7% to 4.6%.

Despite the fall, November's figure remains nearly double that of the BoE's target of 2%, meaning that interest rates could will remain high in order to keep inflation dropping towards the Bank's goal.

Head of equity funds at Hargreaves Lansdown, Steve Clayton, added: "Inevitably, speculation that the BoE will begin to lower interest rates in the first half of next year is rising. Sterling is falling this morning as its future support looks to be weakening if UK rates are going to be coming down. Gilts are expected to be well bid this morning as the market prices in a more benign inflationary outlook.

"Futures markets are predicting that UK stocks will be off to the races this morning, with a rise in the FTSE of approaching 1% indicated. At the risk of playing Scrooge, this sort of stuff can spin on a sixpence. A bad reading in December could wipe all of this euphoria out in a flash. Should we be concerned about this? Well, it all depends on the weather. If we get a bitter January, then energy prices could quickly head higher. Time will tell."

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