By Ed Frankl
Consumer prices in Britain cooled more than expected in November, keeping the Bank of England on course for the fourth interest-rate cut of the year this week, amid signs of weakness in the labor market and a slowing economy.
The U.K's Office for National Statistics said Wednesday that the annual rate of inflation was 3.2% last month, the lowest since March and down from 3.6% in October. Economists polled by The Wall Street Journal expected 3.5%.
Inflation has therefore eased more rapidly from a lower peak than BOE policymakers had expected. The figures were released as officials prepared to vote on policy later Wednesday, with the decision to be announced Thursday. Sterling fell against the dollar after the inflation print.
"Inflation is fading much faster than everyone thought," said Paul Dales, chief U.K. economist at Capital Economics, in a note to clients.
The big fall in inflation will surely be enough to prompt the governor of the BOE to "give borrowers the early Christmas present of a cut in interest rates", he said.
The central bank paused its quarterly rate-cutting cycle in November, in part due to continued price pressures, but it expects inflation to fall to 2.5% by the final quarter of 2026, it said at its November policy meeting.
Policymakers chose to hold rates by a tight 5-4 vote last month. The decision announced this Thursday will likely again be close, though the bank's Governor Andrew Bailey is expected to switch sides to vote with a rate cut. In November, he said he expects further policy easing should a course of lower inflation become clearer.
Inflation fell from a pandemic-era high of 11.1% in 2022 to the BOE's 2% target in May of last year, but crept up steadily from the fall of 2024 to peak at 3.8% this September.
Bailey aside, the nine-member rate-setting committee has divided into two camps. One is more concerned with sticky inflation, particularly in food and services, alongside constraints in labor supply that are keeping costs for businesses high.
Lower food prices, which traditionally rise at this time of year, were the main driver of the fall in inflation, ONS Chief Economist Grant Fitzner said. Services inflation also eased slightly to 4.4% from 4.5% in October.
The other camp points to a creaking jobs market and declining wage growth as a reason to be comfortable in cutting rates this week. In ONS data published Tuesday, the unemployment rate edged up to a near five-year high of 5.1% in the three months through October, while the measure of private-sector regular wage growth--closely watched by the BOE--fell to 3.9% from 4.2%.
The latest budget measures announced by the U.K. could also lower the annual rate of inflation, BOE Deputy Governor Clare Lombardelli told lawmakers last week. However, it wasn't clear that interest-rate cuts would follow, she cautioned.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
December 17, 2025 02:42 ET (07:42 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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