UK inflation dropped sharply to 3.2% in November, down from 3.6% in October and beating economists' expectations of 3.5%. The larger-than-anticipated fall has convinced economists that the Bank of England will cut interest rates on Thursday, delivering relief to borrowers before Christmas.
The Office for National Statistics released the figures showing the lowest inflation rate since March. Black Friday sales drove down clothing and shoe prices by 0.3%, while food and non-alcoholic drink prices fell by 0.2% in November. Food inflation slowed to 4.2% from 4.9% in October, with notable drops in bread, cereals, dairy, sugar, jam, and chocolate.
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.» Rob Wood, chief UK economist for Pantheon Macroeconomics, called the rate cut «beyond doubt».
Interest rate cut almost certain
The Bank of England's Monetary Policy Committee meets Thursday and is widely expected to reduce the base rate from 4% to 3.75%. Markets priced in a greater than 98% likelihood of the cut following the inflation data. This would mark the fourth rate reduction this year after cuts in February, May, and August.
Chancellor Rachel Reeves welcomed the news, stating that lowering household bills is her «top priority». She pointed to Budget measures including a £150 cut to average energy bills from April, which the Bank of England believes will «help cut prices» and make inflation «fall faster next year as a result».
Impact on mortgages and savings
A rate cut would benefit mortgage holders, particularly those on tracker deals who would see faster payment reductions. The market already offers fixed-rate mortgages below 4%, with some deals as low as 3.51%. Lenders have been cutting rates in anticipation of the Bank's decision, a trend expected to continue into the new year.
Savers face declining returns as 1,512 savings accounts now beat the 3.2% inflation rate. Easy-access accounts offer around 4.35%, while the best one-year fixed rate stands at 4.51%. However, rates have fallen from 5-5.5% at the start of 2025 to approximately 4.4-4.5% currently.
For renters, relief will not be immediate. Lower interest rates could stabilize the rental market over time if landlords' mortgage costs decrease, though outright rent reductions remain unlikely in the short term.
Some prices still rising sharply
Despite the overall slowdown, certain items saw substantial annual increases. Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that «experiences at the supermarket will still depend enormously on what you buy».
She highlighted «striking annual rises» including beef and veal up 27.7%, whole milk up 14.8%, and butter at 12.1%. Cattle farmers are «still feeling the financial impacts of a poor grass harvest – as well as increased labour costs throughout the production and sales process».
Economists warn inflation may rebound slightly in December when tobacco duties take effect, food prices bounce back, and Black Friday sales end. Wood cautioned that much of November's inflation surprise was «concentrated in erratic or volatile items like airfares and accommodation services, or was likely driven by the temporary effect of early Black Friday discounts» that will «likely reverse».
Note: This article was created with Artificial Intelligence (AI).
