UK inflation cooled more sharply than forecast in November, strengthening market expectations that the Bank of England (BoE) will cut interest rates at its December decision.
Figures released by the Office for National Statistics (ONS) on Wednesday, 17 December 2025 show the Consumer Prices Index (CPI) inflation rate fell to 3.2% in the 12 months to November, down from 3.6% in October. On a month‑to‑month basis, CPI fell by 0.2%—a notable shift for a period that often includes pre‑Christmas price changes. [1]
The cooler‑than‑expected inflation report lands just one day before the BoE publishes its Monetary Policy Summary and minutes for December 2025 (scheduled for 18 December 2025), with investors widely anticipating a quarter‑point reduction in Bank Rate. [2]
What the ONS inflation report said today
The ONS release underlined a broad easing across several of the measures most watched by policymakers and markets:
- CPI inflation (headline):3.2% year‑on‑year in November (down from 3.6% in October) [3]
- CPI monthly change:-0.2% in November (vs +0.1% in November 2024) [4]
- CPIH (ONS’s broader inflation measure including owner occupiers’ housing costs):3.5% year‑on‑year (down from 3.8%) [5]
- Core CPI (excluding energy, food, alcohol and tobacco):3.2% year‑on‑year (down from 3.4%) [6]
- CPI services inflation:4.4% year‑on‑year (down slightly from 4.5%) [7]
For the BoE, this mix matters because a genuine and sustained cooling usually requires progress not only on headline inflation, but also on “underlying” measures like services inflation and core inflation—areas often tied to domestic wage and cost pressures.
Why inflation fell: food, tobacco, and discounting played a key role
The ONS breakdown points to a set of specific forces pushing inflation lower—some structural, some seasonal, and some policy‑linked.
Food inflation slowed, led by bread and cereals
Food and non‑alcoholic beverages inflation eased to 4.2% year‑on‑year (from 4.9%), and prices in that category fell by 0.2% during the month. [8]
The ONS highlighted bread and cereals as the biggest driver of the downward shift, with prices for products such as cakes, biscuits, and breakfast cereals falling this year after rising a year earlier. [9]
Sky News linked the food‑price slowdown to intense competition among supermarkets ahead of Christmas—describing a “supermarket price war” that helped pull the headline rate down more than expected. [10]
Tobacco and duty timing mattered
Alcohol and tobacco inflation slowed to 4.0% year‑on‑year (from 5.9%), with prices falling by 0.4% during November. [11]
The ONS said the easing largely reflected tobacco prices falling slightly in the month compared with a sizeable increase a year earlier—when the rise may have been influenced by a tobacco duty increase that took effect in late October 2024. In 2025, duty rates did not increase until 26 November, which the ONS noted was after the data collection period for the month. [12]
Clothing prices dropped, with Black Friday effects in focus
Clothing and footwear inflation turned negative, with prices down 0.6% over the year (after +0.3% in October). On the month, prices fell 0.3%, compared with a 0.6% rise a year earlier. [13]
The ONS said these movements partly reflect changes in discounting patterns, noting an increase in the proportion of discounted prices between October and November that may be linked to Black Friday, with the increase appearing greater in 2025 than in 2024. [14]
Markets shift toward a December rate cut—and the pound slips
With inflation and services prices coming in softer than many forecasts, market pricing moved further toward a BoE cut.
Reuters reported that financial markets were pricing more than a 90% chance of a quarter‑point cut to 3.75% at Thursday’s decision, even as some economists described the vote as finely balanced. [15]
Sterling weakened after the data, with Reuters noting the currency dropped by roughly half a cent versus the U.S. dollar in the immediate reaction, consistent with investors leaning toward looser monetary policy. [16]
Sky News similarly cited London Stock Exchange Group data showing more than 90% of market participants expecting a cut to 3.75%, which would take rates to their lowest level in almost three years. [17]
What the Bank of England is watching: services inflation and the “next month” question
While November’s report was clearly supportive for the “rate cut” camp, policymakers have been wary of declaring victory too early—particularly if inflation pressures re‑emerge in domestically driven categories.
Reuters pointed out that services inflation—a BoE focus as a proxy for more persistent price pressure—fell to 4.4% rather than holding at 4.5% as economists and the Bank had expected. [18]
But the same Reuters report also flagged a key complication: even as food inflation fell to 4.2% in November, the BoE has previously indicated it expects food inflation to rise to 5.3% in December (which Reuters said would be the highest in nearly two years). That kind of near‑term rebound risk is one reason some officials may prefer caution. [19]
The decision date: BoE minutes due 18 December
The Bank of England’s own website shows the Monetary Policy Summary and minutes for the December 2025 meeting are scheduled to be published on 18 December 2025. [20]
Today’s inflation release is significant not just because it’s lower—but because it arrived at the final moment when it can still shape a decision that markets increasingly view as “live.”
Reuters also noted the BoE’s committee was closely split at the prior meeting, when policymakers voted 5–4 to keep rates on hold, and that investors expect any December cut to be similarly close. [21]
Political and business reaction: relief for households, but pressure remains
The inflation drop is politically meaningful because it intersects directly with the cost‑of‑living narrative heading into 2026.
Chancellor Rachel Reeves said families worried about bills would welcome the fall in inflation, and reiterated that reducing household costs is her “top priority,” pointing to policies such as freezing rail fares and prescription fees and cutting average energy bills in the budget. [22]
Business groups also leaned toward a cut. The Institute of Directors (IoD) said today’s inflation data increased the likelihood of a “welcome” rate cut tomorrow, while also pointing to weakening in the economy and labour market. [23]
What this could mean for mortgages, savings and household budgets
If the BoE cuts Bank Rate, the immediate economic impact will vary depending on how households and firms borrow:
- Tracker mortgages and some variable‑rate loans tend to react more quickly to base‑rate moves, though the timing and size of changes depends on lender policies and product terms.
- Fixed‑rate mortgage pricing often adjusts before central bank moves, because it’s driven by market expectations as much as by the current Bank Rate—meaning some of the “cut” effect may already be priced into new deals.
- Savings rates often follow base rate moves lower, though competition and funding pressures can change how quickly banks pass through cuts.
At the same time, today’s data is a reminder that prices are still rising—just at a slower pace than in recent months. CPI inflation at 3.2% remains above the BoE’s 2% target, leaving policymakers balancing growth support against the risk of inflation persistence. [24]
The bottom line: a clearer path to a cut, but not a clean all-clear
The big takeaway from 17 December’s inflation release is that the UK disinflation trend looks more convincing than it did earlier in autumn—driven by a meaningful slowdown in food inflation, a drop in clothing prices amid heavy discounting, and easing in tobacco‑related price pressure.
That combination has reinforced market conviction that the Bank of England will deliver a December cut—potentially to 3.75%—when it publishes its decision and minutes on 18 December 2025. [25]
However, the BoE is likely to remain cautious about the outlook—especially as it weighs services inflation, wage pressures, and the possibility of a near‑term rebound in categories like food. [26]
References
1. www.ons.gov.uk, 2. www.bankofengland.co.uk, 3. www.ons.gov.uk, 4. www.ons.gov.uk, 5. www.ons.gov.uk, 6. www.ons.gov.uk, 7. www.ons.gov.uk, 8. www.ons.gov.uk, 9. www.ons.gov.uk, 10. news.sky.com, 11. www.ons.gov.uk, 12. www.ons.gov.uk, 13. www.ons.gov.uk, 14. www.ons.gov.uk, 15. www.reuters.com, 16. www.reuters.com, 17. news.sky.com, 18. www.reuters.com, 19. www.reuters.com, 20. www.bankofengland.co.uk, 21. www.reuters.com, 22. news.sky.com, 23. www.iod.com, 24. www.ons.gov.uk, 25. www.reuters.com, 26. www.reuters.com
