Unexpected Plunge in UK Inflation Sparks Rate Cut Speculation

UK consumer price inflation dropped unexpectedly to 3.2% in November, its lowest since March, causing speculation about a rate cut from the Bank of England. Sterling fell against the US dollar following the data. Economists and bank officials continue to assess inflationary trends and potential interest rate adjustments.

The UK's consumer price inflation made an unexpected drop to 3.2% in November, reaching its lowest level since March according to official data released on Wednesday. This unexpected decline from 3.6% in October has intensified discussions about a potential interest rate cut from the Bank of England, anticipated on Thursday.

Following the inflation announcement, sterling weakened by around half a cent against the U.S. dollar, reinforcing market expectations of a more accommodative monetary policy. Despite a Reuters poll predicting a median fall to 3.5%, the Bank of England's forecast hinted at a larger drop to 3.4%. Financial markets have factored in a more than 90% probability of the BoE slashing rates by a quarter-point to 3.75%.

Key components such as services price inflation, seen as a measure of longer-term inflation trends, decreased to 4.4%. Meanwhile, food and non-alcoholic beverage inflation fell, although it's expected to rise again in December. A narrow vote is expected for December's monetary policy decision, with Governor Andrew Bailey likely to pivot if further declines in inflation occur.

(With inputs from agencies.)