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UK inflation fell more than expected to an eight-month low of 3.2 per cent in November, strengthening the case for the Bank of England to cut interest rates on Thursday to boost a weakening economy.

Wednesday’s figure from the Office for National Statistics was below the forecasts of 3.5 per cent from analysts polled by Reuters. It also marked a slowdown from October’s 3.6 per cent.

November’s reading was pulled down by lower food and drink prices, as well as declines in clothing costs, the ONS said.

BoE Governor Andrew Bailey has signalled his support for a further quarter-point reduction in rates to 3.75 per cent at this week’s meeting of the Monetary Policy Committee, as long as official data shows an ongoing easing of price pressures. 

The MPC has been deeply divided for months over whether to prioritise boosting anaemic economic growth or to bear down on inflation, which peaked at 3.8 per cent over the summer.

In a sign of easing price pressures, services inflation, which is closely tracked by rate setters, eased to 4.4 per cent in November from 4.5 per cent in October.

Core inflation, which excludes energy and food, was 3.2 per cent, down from 3.4 per cent in October and below economists’ expectations.

Economists said that signs inflationary pressures were abating alongside weakness in the labour market opened the door to more the possibility of more aggressive rate cuts from the MPC next year.

UK unemployment rate rose to 5.1 per cent in the three months to October, official figures on Tuesday showed.

Tomasz Wieladek, chief European macro strategist at asset manager T Rowe Price, said November’s inflation reading was “a clear signal that the cutting cycle is far from done,” adding that it “clearly a challenge to the more hawkish MPC members”.

Following the data, the pound fell 0.7 per cent against the dollar to $1.333 as traders ratcheted up bets on BoE rate cuts.

The central bank predicts that inflation will fall to 2.5 per cent in the final quarter of next year and hit its 2 per cent target in 2027.

The MPC has cut interest rates five times since the summer of 2024, but Bailey has signalled that the rate-cutting cycle could tail off next year. 

Chancellor Rachel Reeves’ November Budget is set to reduce headline inflation by about 0.4 to 0.5 percentage points as a result of cost of living policies aimed at trimming energy costs, the BoE estimates.

Responding to the figures, Reeves said: “I know families across Britain who are worried about bills will welcome this fall in inflation.