LONDON (Reuters) – Inflation in Britain is falling more than expected, leading investors to expect a turnaround in interest rates in the first half of next year.
The inflation rate fell noticeably to 3.9 percent in November, after 4.6 percent in October, as the ONS statistics office announced in London on Wednesday. Price developments in the transport sector and fuels in particular contributed to the inflation rate falling to its lowest level since September 2021. Economists surveyed by Reuters had only expected a decline to 4.4 percent. Even if the central bank’s inflation target of 2.0 percent is still far from being reached, bets on interest rate cuts are increasing.
An easing step is now firmly expected on the futures markets in May. Overall, interest rates could fall by more than 1.35 percentage points over the next year. The Bank of England (BoE) recently left the key monetary policy rate at 5.25 percent. After 14 interest rate hikes in a row, the members of the Monetary Policy Committee (MPC) kept their feet still for the first time in September and also paused in November. BoE boss Andrew Bailey had emphasized that the tight line in combating inflation was having an effect. But it is still too early to speculate about interest rate cuts.
POUND FALLS
The pound fell against the dollar following surprisingly low inflation data. And British government bond yields fell significantly. Finance Minister Jeremy Hunt believes that the central bank has not yet reached its goal despite price pressure falling more strongly than expected: “There is still a way to go. Inflation never falls in a straight line,” the conservative politician told the press. “We continue to assume that overall inflation will return to two percent in the first quarter of 2025,” write UniCredit economists. British Prime Minister Rishi Sunak, who faces an election in 2024, has made halving inflation in 2023 his top priority and is expected to achieve that goal.
So-called core inflation, which excludes energy and food prices, also fell more than expected on the island in November – to an annual rate of 5.1 percent after 5.7 percent in October. And the inflation rate in the services sector – which the BoE pays particular attention to as a measure of domestic inflation – fell to 6.3 from 6.6 percent in the previous month.
(Report by David Milliken and Andy Bruce, Muvija M, written by Reinhard Becker, edited by Jörn Poltz. If you have any questions, please contact our editorial team at [email protected])