The final interest rate decision of the year is approaching as fresh economic data points to easing inflationary pressure in the UK. Recent figures suggest that price growth is continuing to slow, strengthening expectations that policymakers may be ready to begin cutting rates.
The Consumer Prices Index (CPI) inflation rate fell to 3.6% in October, marking a four-month low. The decline was primarily driven by gas and electricity prices, which rose at a slower pace than during the same period in the previous year. This moderation has reinforced the view that the peak in inflation is now well behind the economy.
Economists argue that falling inflation, combined with broader signs of cooling economic activity, increases the likelihood of a rate cut at the next meeting. Slower consumer spending, softer business confidence and easing cost pressures are all adding weight to that assessment.
The upcoming decision also follows the Autumn Budget last month. Some economists had expected fiscal measures that would further dampen inflation, including the possibility of higher income tax rates. Those measures did not materialise, leading some analysts to conclude that the Budget was less effective at curbing inflation than anticipated.
International developments are also shaping expectations. This week, the US Federal Reserve cut interest rates to their lowest level since 2020. However, its chair, Jerome Powell, stressed that future decisions would depend heavily on incoming economic data and that policymakers would proceed with caution.
Taken together, easing inflation at home and shifting global monetary conditions have set the stage for a potentially significant decision in the week ahead.
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