The Bank of England is widely expected to cut interest rates on Thursday, following a sharper-than-anticipated drop in inflation that has strengthened the case for reducing borrowing costs. Economists predict the Monetary Policy Committee will lower the base rate from 4% to 3.75%, marking the lowest level since early February 2023.
The Consumer Prices Index inflation fell to 3.2% in November, down from 3.6% in October and below the 3.5% economists had forecast. This represents the lowest inflation rate since March. The drop was primarily driven by easing food and drink inflation, which fell to 4.2% from 4.9%, while alcohol and tobacco prices also softened.
Expert Reactions
Thomas Pugh, chief economist for RSM UK, said: «This will be further evidence for the Bank of England that the disinflationary process is intact and seals the deal for a rate cut tomorrow.» He noted that Black Friday sales contributed to the larger-than-expected fall.
James Smith, developed market economist for ING, declared: «Christmas has come early for the doves at the Bank of England, with inflation coming in well below expectations in November.» He expects headline inflation to fall close to the Bank's 2% target by May.
Anna Leach, chief economist at the Institute of Directors, commented: «Inflation has fallen back decisively in today's data, and by more than expected, bringing the rate to its lowest since March.» She emphasized that food price inflation has eased to its lowest rate since April.
Impact on Borrowers and Savers
The anticipated rate cut would deliver what Danni Hewson, head of financial analysis at AJ Bell, called a «festive gift to borrowers». She added: «Although 3.2% is still way above the Bank of England's target, it is expected to be the final piece in the puzzle which will enable rate setters to deliver their own festive gift to borrowers with an interest rate cut on Thursday.»
High street banks and building societies have already begun reducing mortgage rates in anticipation of the decision, offering savings of hundreds of pounds annually for borrowers. However, savers face squeezed returns as interest rates decline.
Future Outlook
Markets are pricing in additional rate cuts for 2026, with expectations of two to three further reductions that could bring the base rate as low as 3%. City traders see a 72% probability of three cuts next year.
However, Hewson cautioned: «There are still massive question marks about what 2026 will bring and markets don't expect the Bank of England to cut interest rates more than once or twice over the next year, so borrowers hoping to see a return to the ultra-low levels many people had become used to will have to adapt.»
Some experts have not ruled out a more aggressive 0.5% cut, though most anticipate a quarter-point reduction. The decision comes as the British economy shows signs of cooling, with rising unemployment and stagnant growth alongside the falling inflation.
Note: This article was created with Artificial Intelligence (AI).
