UK inflation falls before Bank of England rate decision
Consumer price inflation in the UK unexpectedly fell to 3.2 per cent in November from 3.6 per cent the previous month, a day before the Bank of England was widely expected to cut interest rates.
A Reuters survey of economists predicted that the November annual inflation rate would fall to an average of 3.5 percent, while the BoE had predicted a slightly larger drop to 3.4 percent at the beginning of the month.
Financial markets are pricing in a more than 90 percent chance that the BoE will cut interest rates by a quarter point to 3.75 percent on Thursday, but many economists see the decision as more balanced.
The BoE’s Monetary Policy Committee voted 5-4 to keep interest rates steady in November, breaking the pace of quarterly rate cuts since 2024, and economists expect a rate cut in December by only a narrow 5-4 margin.
Governor Andrew Bailey, one of the members who opposed a cut in November, appears likely to swing the vote, as he said in the minutes that he wanted to see a further decline in price pressures “this year” before backing a cut.
Inflation in Britain has been higher than in other major advanced economies, and in November the central bank predicted inflation would remain above its two per cent target until the second quarter of 2027.
Finance minister Rachel Reeves has since announced measures in her 26 November budget to shift climate change costs from taxes on energy bills to general taxation.
BoE Deputy Governor Clare Lombardelli said these could temporarily reduce inflation by up to half a percentage point from April 2026, potentially allowing the BoE to meet its CPI target sooner, but would do little to change the long-term outlook.
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