UK inflation falls sharply to 3.2% in November, fueling likelihood of Christmas rate cut

The U.K.’s inflation rate cooled sharply to 3.2% in November, boosting the chances of the Bank of England cutting interest rates at its final meeting of the year on Thursday.

Economists polled by Reuters had expected inflation to stand at 3.5% in the twelve months to November — the lowest annual rate since March — and down from 3.6% in October.

Core inflation, excluding energy, food, alcohol, and tobacco, also rose by 3.2% in the year to November, down from 3.4% in October, according to the latest figures from the Office for National Statistics.

Lower food prices, which traditionally rise in the run up to Christmas, were the main driver of the fall, with decreases seen particularly for cakes, biscuits, and breakfast cereals, ONS Chief Economist Grant Fitzner commented Wednesday.

“Tobacco prices also helped pull the rate down, with prices easing slightly this month after a large rise a year ago. The fall in the price of women’s clothing was another downward driver,” Fitzner said in comments on X.

While the rise in the cost of goods leaving factories slowed, the annual cost of raw materials for businesses continued to rise, he added.

Chancellor Rachel Reeves welcomed the drop in the inflation rate but said there is “more work to do.”

“I know families across Britain who are worried about the cost of living will welcome this fall in inflation. But there is more to do,” she said on X.

The data, coming after a print on Tuesday showing the U.K. unemployment rate rose 5.1%, is likely to encourage the Bank of England’s nine-member monetary policy committee (MPC) to cut the benchmark interest rate by 25 basis points to 3.75% when it meets on Thursday.

Economists expect a 5-4 vote by the central bank’s MPC, however, with BOE Governor Andrew Bailey expected to be the swing vote in favor of a trim.

Growth in the U.K. remains stubbornly low, with the economy eking out only a 0.1% expansion in the third quarter, according to the most recent data, and signs that unemployment could be ticking higher.

“These figures, alongside the recent deluge of downbeat data, mean that an interest rate cut tomorrow looks certain,” Suren Thiru, economics director at the ICAEW, said after the inflation data.

“While the financial squeeze on households and businesses remains severe, these figures offer reassurance that the U.K. is moving towards a more modest inflation environment, helped by lower food prices,” he noted in emailed comments.

“The growing downward pressure from a loosening labour market and wilting economy should help keep it on a downward path,” he said.