Inflation fell further than expected in November to 3.9 per cent, down from 4.6 per cent in October.
Data, released by the Office for National Statistics today (December 20), showed the year-on-year rise in the consumer price index was the lowest since September 2021.
Food and drink, transport and recreation were all areas where prices have reduced, easing inflation.
The average price of petrol fell by 4.1p per litre between October and November 2023, while the price of bread and cereals dropped by 0.8 per cent, compared with a rise of 1.9 per cent a year ago.
The ONS said that while food the annual inflation rate for food has been slowing, prices are still high following sharp rises in the past two years.
Following the announcement this morning, the pound fell by 0.5 per cent against the US dollar, trading at $1.26.
Kirsty Watson, chief operating officer at Abrdn adviser, said: “Prices are now rising at their slowest rate in more than two years, and significantly slower than the 10.1 per cent CPI recorded at the start of 2023.
“This will be welcomed by clients and advice firms alike – both have had to shoulder increased costs."
Watson added: “As we look ahead to the new year, the big questions will be whether this trend will continue, what factors might spark further price rises and how interest rates are likely to respond to future movements.
"Clients will value reassurance that their financial plans are prepared to keep delivering good outcomes, whatever conditions transpire, and that their advisers are on hand to help them adapt their strategies quickly if and as required.”
Richard Carter, head of fixed interest research at Quilter Cheviot, said the latest inflation figure means the Bank of England "faces a less daunting task" bringing inflation back to its 2 per cent target next year.
He said: "While the UK's economic performance mirrors the broader European trend, it starkly contrasts with the resilience shown by the US economy. Looking ahead, forecasts for 2024 remain muted, with the Bank of England projecting a continuation of this stagnant growth phase.
"But while things have been bleak for some time, signs of recovery are emerging, with wages finally outpacing inflation and consumer confidence showing early signs of recovery and this morning’s relatively sizable drop in inflation.
"This modest rebound, in light of the myriad challenges faced this year, suggests a resilience in the UK economy that shouldn't be underestimated.
"While the economy may not have achieved the growth anticipated, its ability to avoid a deep recession amidst such turbulent times is noteworthy but whether this can continue into next year is yet to be seen."
Dean Butler, managing director for retail direct at Standard Life warned that times were still tough for many with energy prices set to rise again and the full impact of higher interest rates yet to be seen.
He added: "However, inflation falling further than expected will take some of the strain off struggling households and some people think it could lead to the Bank of England lowering the base interest rate next year, which would help people with mortgages or unsecured debt, like payday loans or credit cards."
tara.o'connor@ft.com
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