British consumer price inflation fell unexpectedly sharply to 3.2 per cent in November, its lowest since March, from 3.6 per cent in October, official figures showed on Wednesday, a day before the Bank of England is widely expected to cut interest rates.
A Reuters poll of economists had shown a median forecast of a fall to 3.5 per cent in November's annual inflation rate, though the BoE had pencilled in a slightly bigger drop to 3.4 per cent.
"Inflation fell notably in November to its lowest annual rate since March," ONS chief economist Grant Fitzner said in a statement.
"Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall with decreases seen particularly for cakes, biscuits and breakfast cereals."
Wednesday's data showed services price inflation, which the BoE sees as reflecting as a guide to longer-term inflation pressures, fell to 4.4 per cent rather than holding at 4.5 per cent as economists and the BoE had expected.
Food and non-alcoholic beverage inflation dropped to 4.2 per cent from 4.9 per cent in October. The BoE has said it expects this to rise 5.3 per cent in December, the highest in nearly two years.
Core CPI - which excludes more volatile food, alcohol, energy and tobacco prices - also slowed to 3.2 per cent rather than holding at 3.4 per cent as economists had forecast in the Reuters poll.
Last month the BoE's Monetary Policy Committee voted 5-4 to keep interest rates on hold, breaking the quarterly cadence of rate cuts in place since 2024 and economists expect a December rate cut by only a narrow 5-4 margin.
Of those members who opposed a cut in November, Governor Andrew Bailey looks most likely to switch votes as he said in minutes of the decision that he wanted to see further falls in price pressures "this year" before backing a cut.
British inflation has been higher than in other major advanced economies and in November the central bank forecast it would remain above its 2 per cent target until the second quarter of 2027.
Chancellor Rachel Reeves, who along with prime minister Keir Starmer has come under pressure over Britain's weak economic growth, welcomed the data.
"Getting bills down is my top priority," she said in a statement, having recently announced measures to trim energy and rail ticket prices in the Labour government's annual budget.
The pound accelerated losses against the dollar following the data as markets priced in a rate cut.
The "big fall in CPI inflation... will surely be enough to prompt the governor of the Bank of England (Andrew Bailey) to reach into his big bag tomorrow and give borrowers the early Christmas present of a cut in interest rates", Paul Dales, chief UK economist at Capital Economics research group, said in a statement.
He added that the BoE was on course to cut borrowing costs further next year with UK inflation set to move closer to the central bank's two-percent target.
(Reuters/AFP)