UK inflation fell more sharply than expected to 3.2% last month, virtually guaranteeing that the Bank of England will cut interest rates on Thursday. The drop from 3.6% in October has pushed market expectations of a 0.25 percentage point reduction to above 95%, according to data released Wednesday.
The Monetary Policy Committee, which voted 5-4 to hold rates in November, is now widely expected to lower the base rate from 4% to 3.75%. The decision will be announced at noon on Thursday. The Office for National Statistics reported that food price inflation eased to 4.2% annually, down from 4.9% in October, with month-on-month declines in sugar (4%), pasta and couscous (4.2%).
Services inflation, a key measure for policymakers, fell to 4.4% from 4.5%, its lowest since December 2024. However, annual services inflation remains high, and the Bank has been cautious due to persistent wage growth and the impact of Rachel Reeves's £25bn increase in employer national insurance contributions, which took effect in April.
Chancellor Rachel Reeves will welcome the data as she faces rising taxes and a slowing labour market. The Trades Union Congress called for "a sequence of rate cuts" to boost the economy. Independent MPC member Swati Dhingra argued in September that the Bank should not be "overly cautious" about cuts, as much of the inflation increase was temporary.
Reeves took measures in last month's budget to help bring inflation down, including cutting household energy bills from next spring. She will hope the latest data confirms the worst of the inflation hump is over, allowing the Bank to respond swiftly with rate cuts to restore confidence in the fragile economy.
