Inflation in the U.K. as measured by the consumer prices index has eased back to its lowest level in more than two years
LONDON — Inflation in the U.K. as measured by the consumer prices index eased back to its lowest level in more than two years, official figures showed Wednesday, in a development that stoked speculation that the Bank of England may start cutting interest rates sooner than expected.
The Office for National Statistics said that inflation dropped to 3.9% in the year to November, its lowest level since September 2021, from 4.6% the previous month. That decline was bigger than anticipated in financial markets.
The agency said the biggest driver for the fall was a decrease in fuel prices after an increase at the same time last year. The decreasing rate in food price inflation also contributed to the decline.
The sharp drop has fueled expectations that the Bank of England, which sets interest rates in order to hit a 2% target, may move to reduce borrowing rates possibly in the first half of 2024.
The pound dropped 0.6% to $1.2650, a sign that traders think the central bank may look to cut rates soon, which would reduce relative returns for holders of the currency.
“The Bank has been loath to put a timetable on rate cuts in 2024, but this clearly raises the prospect of the Bank being in a position to ease policy in the first half of the year, rather than later,” said Neil Wilson, chief markets analyst at Finalto. “At least it will prompt the market to buy into this idea.”
That's a marked change from last week when the Bank of England left its main interest rate at a 15-year high of 5.25%, where it has stood since August following the end of nearly two years of hikes. Bank Gov. Andrew Bailey said that
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