A sharp fall in inflation will give borrowers a Christmas boost as interest rates could be cut early next year

Borrowers got an early Christmas present yesterday after a sharp fall in inflation raised hopes of a rapid series of rate cuts next year.

Such a scenario would intensify competition among mortgage lenders to offer cheaper rates — a boost for millions of homeowners who face higher repayments when their current deals expire.

Official figures show that inflation fell to 3.9 percent in November, down from 4.6 percent in October – and much lower than the 4.4 percent expected by economists.

The decline, caused by easing pressure on fuel and food prices, means inflation is now at its lowest level in more than two years.

The figures were a celebratory boost for Prime Minister Rishi Sunak, whose pledge to halve inflation from more than 10 percent has now been exceeded by some margin.

And they were ominous doomsayers who feared that Britain was on course for a prolonged period of much higher inflation than other advanced countries.

The Office for National Statistics figures have also led to calls for a rethink from the Bank of England, which has pushed back against rumors that rate cuts could be coming soon.

The financial markets largely ignore this and assume that the Bank will cut interest rates in the spring, now that inflation is falling.

Traders see an almost 50 percent chance that the first cut could happen as early as March and that the Bank's base rate – currently at 5.25 percent – will fall to 3.75 percent by this time next year.

Mortgage lenders have already cut the interest rates they offer to borrowers – and they are starting to fall below 4 percent for the first time since May.

Today, Generation Home will reduce its five-year fixed agreement to 3.94 percent for customers with a 40 percent deposit. And Barclays just cut rates by 0.43 percentage points.

Mr Sunak called the lower inflation rates 'good news for everyone in this country'. Chancellor Jeremy Hunt said: “We are back on the path to healthy, sustainable growth.”

Danni Hewson, head of financial analysis at AJ Bell, added: 'Some families will be dreading this Christmas, feeling guilty about the presents they have been able to afford or worrying about paying off debts they have accrued just to to be able to afford basic needs. festive treats.

“But it does feel like those sticky tendrils are losing their grip.”

Inflation rose to 11.1 percent last fall as food prices and energy bills rose – a trend accelerated by Russia's invasion of Ukraine.

The Bank of England has raised interest rates in an attempt to bring inflation back to its 2 percent target.

The last rate hike took place over the summer and there is now intense speculation about when rates will be cut, especially at a time when the broader economy is in the doldrums.

GDP growth has been weak this year and figures last week showed it contracted 0.3 percent in October, sparking fears that Britain is entering a recession. Critics of the Bank's approach fear that things could get worse if interest rates are kept too high for too long.

Tory MP Sir John Redwood said the Bank had been wrong on interest rates for 'too long' and should follow the US Federal Reserve, which earlier this month suggested it would make a series of interest rate cuts next year.

Julian Jessop, economics fellow at the Institute for Economic Affairs, added: 'The sharp fall in inflation in November makes the Bank of England's position on interest rates look even shakier.'

Simon French, chief economist at Panmure Gordon, said: 'Those who argued last summer that Britain was on a sustainable and higher inflation path relative to the rest of the developed world are starting to look a bit foolish.'

British inflation is still higher than in the US – where it was 3.1 percent in November – and the eurozone – where it has fallen to 2.4 percent – but the gap has narrowed.