Inflation fell by a larger-than-expected 3.9% in the year to November, posting its lowest level for more than two years, official data shows.
The rate of rising prices is down from 4.6% the month before, and is the lowest rate since September 2021, according to the Office for National Statistics.
Inflation was pushed down last month due to falls in petrol, toys, live theatre and music tickets, as well as food and non-alcoholic beverages.
Economists had forecast a drop in prices to 4.4% in November.
Core inflation — which strips out the price of more volatile goods and services such as energy, food, alcohol and tobacco – also fell to 5.2% last month from 5.6%.
This figure is closely watched by the Bank of England’s Monetary Policy Committee, which held rates at 5.25% for the third meeting in a row last week.
L&C Mortgages associate director David Hollingworth says: “The latest drop in the rate of inflation will strengthen the belief that interest rates have now peaked.
“Today’s news is likely to further that trend, which could soon see five-year fixed rates soon closing in on the 4% marker.
“That would be a big boost for homeowners coming towards the end of their current, low fixed rates and bracing themselves for the inevitable hike in monthly payments.
Hollingworth points out: “Although these rates are still way higher than the lows of recent years when both two- and five-year rates were at one point available around 1%, it will at least feel a little more manageable than the peaks we saw during the volatility of the summer.
“However, the Bank of England has warned that it won’t loosen policy and cut rates until inflation is back on track and there’s still some way to go for that to happen.”
Target managing director Katie Pender adds: “Will borrowers start to feel more confident now that inflation and mortgage interest rates are falling?
“While these headlines offer hope, many homeowners are yet to come off historically low fixed rates and move to higher rates.
“Affordability will remain a major challenge. In addition, the housing crisis continues, with not nearly enough homes being built.
“The Home Builders Federation revealed earlier this week that the number of planning permissions being granted for new homes has fallen to another record low.”
EY ITEM Club chief economic advisor Martin Beck points out: “The scale of November’s undershoot, calls into question the justification of the MPC’s ‘high for longer’ rhetoric around interest rates.
“Indeed, the fact that oil and gas prices are now lower and sterling’s value is higher than the Bank of England’s conditioning assumptions in its last forecast mean inflation is likely to continue to fall faster than the central bank predicted.”
Propertymark chief executive Nathan Emerson adds: “Today’s drop in the rate of inflation is positive news for the housing market and consumers in general.
“Interest rates were preserved at 5.25% earlier this month, and now that inflation has fallen further, Propertymark is optimistic this may lead to a potential dip in interest rates in early 2024.
“This will help restore stronger confidence to the housing market and make the prospect of buying and selling a house more attractive to consumers.”
