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UK inflation fell more than expected to 3.2 per cent in November, strengthening the case for the Bank of England to cut interest rates at its meeting on Thursday.
Wednesday’s figure from the Office for National Statistics was below the forecasts of 3.5 per cent from analysts polled by Reuters. It also marked a slowdown from October’s 3.6 per cent.
November’s reading was pulled down by lower food and drink prices, as well as declines in clothing costs, the ONS said.
BoE Governor Andrew Bailey has signalled his support for a further quarter-point reduction in rates to 3.75 per cent at this week’s meeting of the Monetary Policy Committee, as long as official data shows an ongoing easing of price pressures.
Following the release of November’s data, the pound fell 0.6 per cent against the dollar to $1.334 as traders ratcheted up their bets on BoE rate cuts.
The MPC has been deeply divided for months over whether to prioritise boosting anaemic economic growth or bearing down on inflation, which peaked at 3.8 per cent over the summer.
Figures released on Tuesday showed that the unemployment rate rose to 5.1 per cent in October and wage growth slowed.
The MPC’s decision is likely to be a close one, given that inflation remains well above the central bank’s 2 per cent target, having peaked this year at 3.8 per cent over the summer.
The central bank predicts that inflation will fall to 2.5 per cent in the final quarter of next year and hit its 2 per cent target in 2027.
The MPC has cut interest rates five times since the summer of 2024, but Bailey has signalled that the rate-cutting cycle could tail off next year.
Chancellor Rachel Reeves’ November Budget is set to reduce headline inflation by about 0.4 to 0.5 percentage points as a result of cost of living policies aimed at trimming energy costs, the BoE estimates.
This is a developing story