The United Kingdom’s inflation rate dropped more sharply than expected in November 2025, surprising markets, policymakers, and families alike. The Office for National Statistics (ONS) reported that the Consumer Price Index (CPI) cooled to 3.2% in November, down from 3.6% in October, marking the lowest annual rate since March. This sudden deceleration, which undershot all economists’ forecasts in a Reuters poll, has set the stage for the Bank of England (BoE) to cut interest rates at its final meeting of the year on Thursday, December 18, 2025.
According to the ONS, core inflation—which excludes energy, food, alcohol, and tobacco—also fell to 3.2% in November from 3.4% in October. The main driver behind the fall was a surprise drop in food prices, particularly for cakes, biscuits, and breakfast cereals, items that typically see price hikes in the run-up to Christmas. ONS Chief Economist Grant Fitzner explained, "Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall, with decreases seen particularly for cakes, biscuits, and breakfast cereals." He added that "tobacco prices also helped pull the rate down, with prices easing slightly this month after a large rise a year ago. The fall in the price of women’s clothing was another downward driver."
Black Friday discounts also played a significant role, especially in women’s clothing, further easing the inflation rate. The ONS noted that the impact of these discounts was more pronounced than usual, as retailers engaged in extensive pre-Christmas promotions. Kris Hamer, director of insight at the British Retail Consortium, highlighted that "there were deals to be had, with bigger discounts seen for some meat products such as pork, lamb, and chicken." The price of some food products tumbled compared with a year earlier, including a 16.2% drop in olive oil, a 6.1% decline in flours and other cereals, and a 4.2% drop in the price of pasta products and couscous, according to The Guardian.
While the cost of goods leaving factories slowed, the annual cost of raw materials for businesses continued to rise. Still, the overall picture was one of easing price pressures. Services price inflation, a key metric for the BoE, also softened to 4.4% in November from the previously expected 4.5%.
Financial markets responded swiftly to the inflation data. Sterling dropped by more than half a cent against the U.S. dollar, and interest rate futures priced in a near 100% chance of a quarter-point rate cut on Thursday, according to Reuters. Government borrowing costs fell as investors bet on further rate cuts in 2026.
Economists now overwhelmingly expect the BoE’s nine-member Monetary Policy Committee (MPC) to lower the benchmark interest rate by 25 basis points to 3.75%. The decision is anticipated to be a narrow 5-4 vote, with BoE Governor Andrew Bailey likely acting as the swing vote. In the minutes of the previous meeting, Bailey indicated he wanted to see further falls in price pressures "this year" before supporting a cut. Rob Wood, chief UK economist at Pantheon Macroeconomics, remarked, "An MPC interest rate cut tomorrow is beyond doubt now that inflation surprised to the downside." However, he cautioned that "much of the inflation surprise will likely unwind in the coming months because it was concentrated in erratic or volatile items ... or was likely driven by the temporary effect of early Black Friday discounts."
The inflation news comes amid a slew of other economic data painting a mixed picture of the U.K. economy. Growth remains stubbornly low, eking out just a 0.1% expansion in the third quarter of 2025. Meanwhile, the unemployment rate rose to 5.1% in the three months to October, reaching pre-pandemic levels. Private-sector regular pay growth slowed to 3.9% in the three months to October, the lowest since December 2020, but still above the 3.5% the BoE forecasts as compatible with its 2% inflation target.
Finance Minister Rachel Reeves welcomed the drop in inflation, emphasizing the government’s commitment to easing the cost of living. "I know families across Britain who are worried about bills will welcome this fall in inflation. But there is more to do," Reeves said on X (formerly Twitter). She pointed to measures in her November 26 budget that shift climate change costs away from energy bills toward general taxation, which BoE Deputy Governor Clare Lombardelli suggested could temporarily lower inflation by up to half a percentage point from April 2026. Reeves reiterated, "Getting bills down is my top priority."
Despite the positive developments, not everyone is convinced the battle against inflation is over. The BoE itself has forecast that inflation will remain above its 2% target until the second quarter of 2027, partly due to regulated price rises such as utility bills and persistent wage growth. Mel Stride, the shadow chancellor, offered a note of caution: "While a fall in inflation is welcome, prices are still rising at well above the target rate, which will be deeply concerning for families."
Campaigners and poverty charities have also weighed in, warning that the headline figures mask ongoing hardship for millions. Chris Belfield, chief economist at the Joseph Rowntree Foundation, noted that "7 million households were heading into Christmas unable to afford essential items." He added, "Meanwhile, more people are looking for work with unemployment figures up to pre-pandemic levels and real earnings are barely growing."
Economists remain divided on how much further the BoE can cut rates next year. Some, like Suren Thiru, economics director at the ICAEW, see the latest figures as a sign that the U.K. is "moving towards a more modest inflation environment, helped by lower food prices." He added, "The growing downward pressure from a loosening labour market and wilting economy should help keep it on a downward path." Others caution that some of the current softness in inflation may prove temporary, especially if wage growth remains robust or if volatile items like food and clothing rebound after the holiday season.
For now, though, the sharp fall in inflation offers a rare bit of good news for British households and businesses grappling with a cost-of-living crisis. With interest rate relief seemingly on the horizon, all eyes will be on the Bank of England’s decision this Thursday—a move that could set the tone for the U.K. economy in 2026 and beyond.
