UK Inflation Drops to 3.2%, BOE Rate Cut Likely This Week

London: Consumer price inflation in Britain cooled more than expected in November, strengthening expectations that the Bank of England (BOE) will deliver its fourth interest-rate cut of the year this week as economic momentum weakens.

According to the Office for National Statistics (ONS), annual inflation slowed to 3.2% in November, down from 3.6% in October and well below economists’ forecast of 3.5%. This marks the lowest inflation reading since March and signals faster-than-anticipated progress toward price stability.

Market Reaction and Policy Outlook

The softer inflation data pushed sterling lower against the U.S. dollar, as investors increased bets on an imminent rate cut. The BOE’s policy decision is expected to be announced on Thursday, following a vote by policymakers later this week.

Economists say the latest figures significantly strengthen the case for monetary easing. Analysts note that inflation has fallen more quickly and from a lower peak than the central bank previously expected.

Economists See Door Wide Open for Easing

Capital Economics’ Chief UK Economist Paul Dales said inflation is “fading much faster than everyone thought,” suggesting borrowers could soon benefit from lower interest rates.

Similarly, Thomas Pugh, Chief Economist at RSM UK, said November’s data effectively “locks in” a rate cut this week and may even pave the way for further reductions early next year if inflation continues to slow through 2026.

Divided Policymakers, But Momentum Shifts

The BOE paused its rate-cutting cycle in November after a close 5–4 vote, citing lingering price pressures. However, Governor Andrew Bailey has since signaled that clearer evidence of falling inflation could justify renewed easing. Markets now expect him to support a cut this time.

While some policymakers remain concerned about sticky food and services inflation, others point to growing weakness in the labor market as a reason to lower borrowing costs.

Labor Market Shows Signs of Strain

Recent ONS data highlights a cooling jobs market. The unemployment rate rose to 5.1%, near a five-year high, while private-sector wage growth slowed to 3.9%, down from 4.2%. These trends ease pressure on prices and strengthen the case for policy support.

What’s Driving Inflation Lower?

ONS Chief Economist Grant Fitzner said falling food prices—unusual for this time of year—were the main driver behind the sharp drop in inflation. Services inflation also edged down slightly to 4.4%.

In addition, recent government budget measures, including energy bill relief, frozen rail fares, and delayed fuel duty increases, are expected to further dampen inflation in the near term.

Inflation has fallen dramatically from a pandemic-era peak of 11.1% in 2022 and, despite a brief rebound earlier this year, now appears firmly on a downward path. The BOE currently forecasts inflation to reach 2.5% by late 2026.