UK consumer price inflation fell more sharply than expected in November, easing to 3.2% from 3.6% in October, according to official data released on Wednesday. This marked the lowest inflation reading since March and came just one day before the Bank of England’s closely watched interest rate decision.
Economists surveyed by Reuters had forecast inflation to slow to 3.5%, while the Bank of England had projected a slightly larger decline to 3.4%, making the actual drop a notable downside surprise.
Sterling slips as rate cut expectations strengthen
The pound weakened by around half a cent against the U.S. dollar following the data, as markets increased bets on looser monetary policy.
Financial markets are now pricing in more than a 90% probability that the Bank of England will cut interest rates by 25 basis points to 3.75% on Thursday. However, many economists continue to view the decision as finely balanced.
Services and core inflation ease
Data showed services inflation, a key indicator watched closely by the Bank of England for longer-term price pressures, fell to 4.4%. This was below expectations for it to remain unchanged at 4.5%.
Food and non-alcoholic beverage inflation also slowed, easing to 4.2% from 4.9% in October. The central bank has previously warned this component could rise again in December, potentially reaching 5.3%, the highest level in nearly two years.
Core consumer price inflation, which excludes volatile items such as food, energy, alcohol, and tobacco, declined to 3.2%. Economists had expected it to remain steady at 3.4%.
Bank of England vote likely to be close
In November, the Bank of England’s Monetary Policy Committee voted narrowly, 5–4, to keep interest rates unchanged, breaking a pattern of regular rate cuts that had been in place since 2024. Economists expect a similarly tight vote if rates are reduced this week.
Of the policymakers who opposed a cut last month, Governor Andrew Bailey is seen as the most likely to change his stance. Minutes from the previous meeting showed he wanted to see further declines in price pressures before supporting an easing move.
UK inflation has remained higher than in other major advanced economies. In November, the Bank of England forecast inflation would stay above its 2% target until the second quarter of 2027.
Since that forecast, Finance Minister Rachel Reeves announced measures in her late November budget to shift climate-related costs away from energy bill levies and toward general taxation, a move that could influence inflation dynamics over time.
