British consumer price inflation unexpectedly fell to 3.2 per cent in November from 3.6 per cent the month before, a day before the Bank of England is widely expected to cut interest rates.
A Reuters poll of economists had shown a median forecast of a fall to 3.5 per cent in November’s annual inflation rate, though the BoE at the start of the month had pencilled in a slightly bigger drop to 3.4 per cent.
Financial markets had been pricing in a more than 90 per cent chance of the BoE cutting rates by a quarter-point to 3.75 per cent on Thursday, though many economists see the decision as more finely balanced.
The BoE’s Monetary Policy Committee in November voted 5-4 to keep interest rates on hold, breaking the quarterly cadence of rate cuts in place since 2024 and economists expect a December rate cut by only a narrow 5-4 margin.
Of those members who opposed a cut in November, governor Andrew Bailey looks most likely to switch votes as he said in minutes of the decision that he wanted to see further falls in price pressures “this year” before backing a cut.
British inflation has been higher than in other major advanced economies and in November the central bank forecast it would remain above its two per cent target until the second quarter of 2027.
Since then, finance minister Rachel Reeves announced measures in her November 26 budget that will shift climate change costs away from levies on energy bills towards general taxation.
BoE Deputy Governor Clare Lombardelli said these might temporarily lower inflation by up to half a percentage point from April 2026 – potentially allowing the BoE to hit its CPI target sooner – but do little to change the longer-term outlook.