The UK's consumer price inflation made an unexpected drop to 3.2% in November, reaching its lowest level since March according to official data released on Wednesday. This unexpected decline from 3.6% in October has intensified discussions about a potential interest rate cut from the Bank of England, anticipated on Thursday.
Following the inflation announcement, sterling weakened by around half a cent against the U.S. dollar, reinforcing market expectations of a more accommodative monetary policy. Despite a Reuters poll predicting a median fall to 3.5%, the Bank of England's forecast hinted at a larger drop to 3.4%. Financial markets have factored in a more than 90% probability of the BoE slashing rates by a quarter-point to 3.75%.
Key components such as services price inflation, seen as a measure of longer-term inflation trends, decreased to 4.4%. Meanwhile, food and non-alcoholic beverage inflation fell, although it's expected to rise again in December. A narrow vote is expected for December's monetary policy decision, with Governor Andrew Bailey likely to pivot if further declines in inflation occur.
