Stronger than expected drop in UK inflation adds to bets of BoE rate cuts in 2024

British inflation eased below expectations in November and hit the lowest level in over two years, adding tailwinds to the bets that the Bank of England will start cutting interest rates next year.

The annualized consumer prices index dropped to 3.9% (the lowest since September 2021) from 4.6% in October and well below 4.3% forecast.

Drop in fuel prices was the biggest contributor to November’s figures, followed by smaller rise in food and drinks prices

Core CPI, measure of inflation closely watched by the BoE, fell to 5.1% in November from 5.7% previous month and also beat forecast at 5.5%.

Markets moved to fully price in a BoE rate cut by May 2024 after November’s data, which also made pound less attractive for investors.

BoE policymakers have been cautious about whether recent signs of cooling inflation truly represent a sign that persistent, longer-run price pressures are receding.

Solid data provide strong evidence that disinflationary pressures are building in the UK, as inflation now fell materially below the Bank of England’s expectations and expected to further brighten the outlook, which will contribute to Prime Minister Rishi Sunak’s promise to halve inflation this year.