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Interest rates are set to be cut before Christmas after inflation fell to an eight-month low in November, economists think.
The Bank of England is widely expected to reduce borrowing costs to 3.75% from 4% when it next announces its next decision on Thursday.
This would bring borrowing costs down to the lowest rate since the beginning of February 2023.
Experts have said the Bank’s Monetary Policy Committee (MPC) will be encouraged by recent economic data to lower rates at its final meeting of the year.
In particular, the decision follows the release of the latest inflation data, which showed a bigger drop to Consumer Prices Index (CPI) inflation than analysts had been expecting.
The rate of CPI fell to 3.2% in November, from 3.6% in October, the Office for National Statistics (ONS) said.
This was largely driven by food and drink inflation which dropped to 4.2% from 4.9%, while alcohol and tobacco prices also eased.
Danni Hewson, head of financial analysis for AJ Bell, said: “Although 3.2% is still way above the Bank of England’s target, it is expected to be the final piece in the puzzle which will enable rate setters to deliver their own festive gift to borrowers with an interest rate cut on Thursday.”
The Bank is tasked with bringing inflation down to the 2% target level.
Ms Hewson added: “There are still massive question marks about what 2026 will bring and markets don’t expect the Bank of England to cut interest rates more than once or twice over the next year, so borrowers hoping to see a return to the ultra-low levels many people had become used to will have to adapt.”
James Smith, developed market economist for ING, said the sharp drop in November inflation “green lights” a December rate cut.
“Christmas has come early for the doves at the Bank of England, with inflation coming in well below expectations in November,” he said.
Mr Smith said he was expecting inflation to edge higher in December, partly due to a seasonal spike in air fares.
However, he said the “latest drop in inflation fits into a broader body of evidence suggesting that price pressures are cooling”, adding: “We expect headline inflation to fall pretty close to 2% by May.”
He is forecasting another two cuts to interest rates in February and April next year.
Alongside falling inflation, the MPC is expected to take note of other signs that the economy is cooling including rising unemployment, slower wage growth and stagnant economic growth.
