UK inflation rates were expected to fall sharply in November, surprising analysts. This unexpected decline makes a more positive backdrop for the Bank of England to contemplate further interest rate cuts. Inflation is easing, a welcome sign of lessening price pressures in a variety of sectors. Widely expected to act this week, many guess that the central bank will begin moving as soon as this Thursday.
September’s Consumer Price Index (CPI) came in at 3.2%, down from 3.6% last month, and well below what many had predicted. During the same timeframe, core inflation made an equally impressive drop. In particular, services inflation dropped from 5% in July to 4.4%, and food inflation dropped from 4.9% to 4.2%. The net impact of these reductions in inflation is an affirmation that the UK’s economic fundamentals are stabilising after almost a year of turmoil. This development is more in line with the eurozone, which has seen falling food inflation.
The Bank of England will be cutting rates this week. Unfortunately, this move is only the beginning, with additional cuts planned in February and April of 2026. Economists are cautiously excited about these developments, because at the very least they would mark a first step toward a more growth-friendly monetary policy. Despite this very positive outlook, the Bank of England is clear that we have much still left to do on tackling misinformation around inflation.
Adding to the uncertainty is the recent slowing of wage growth in the UK. As wages continue to stagnate, consumer spending may be weakened, thus pulling down inflation in the long run. With these factors in mind, analysts expect headline inflation to increase once more in December. This big jump will probably be largely due to seasonal increases in airfares, notably during Christmas, when demand for flights typically spikes.
The recent decline in inflation is a sign that the UK is addressing its direction of price stability. Today, it’s an outlier even among other countries. The Bank of England is continuing to proceed with caution. It does remind us to stay watchful as it steers through the rough economic headwinds worldwide.