U.K. Inflation Cools Sharply in November, Strengthening Case for BoE Rate Cut

The U.K.’s annual inflation rate fell sharply in November, reinforcing expectations that the Bank of England (BoE) could cut interest rates at its final policy meeting of the year later this week.

Data showed consumer price inflation eased to 3.2% in November, down from 3.6% in October. While inflation remains well above the BoE’s 2% target, the latest reading marks the lowest level in eight months and confirms a clear downward trend that policymakers have been seeking.

On a monthly basis, consumer prices declined by 0.2%, reversing a 0.4% increase in October. Core inflation, which strips out volatile food and energy prices, also fell 0.2% month-on-month and slowed to 3.2% on an annual basis, from 3.4% previously.

The U.K., like many advanced economies, has only recently emerged from a prolonged period of elevated inflation, which saw consumer prices peak at a 41-year high of 11.1% in October 2022. Despite the recent moderation, Britain still records the highest inflation rate among the Group of Seven economies, keeping policymakers divided over whether persistent price pressures or a weakening labor market pose the greater threat to the economy.

Recent labor market data have added weight to the case for policy easing. Figures released earlier this week showed the U.K. unemployment rate rose to its highest level since early 2021, bolstering market expectations that the BoE will move to lower borrowing costs on Thursday.

Further support for a rate cut has come from measures announced in last month’s budget by Chancellor Rachel Reeves, including relief on energy bills, fuel duty, rail fares and prescription charges, which are expected to help ease cost-of-living pressures.

At its previous meeting, the BoE’s Monetary Policy Committee voted 5–4 to keep interest rates unchanged. Analysts at Deutsche Bank now expect a similarly narrow vote, but in favor of a cut, with Governor Andrew Bailey likely to cast the deciding vote.

A reduction would lower the benchmark interest rate to 3.75% from 4%, marking the lowest borrowing costs since February 2023.