LONDON, Dec 17 (Reuters) - British consumer price inflation fell unexpectedly sharply to 3.2% in November, its lowest since March, from 3.6% in October, official figures showed on Wednesday, a day before the Bank of England is widely expected to cut interest rates.
A Reuters poll of economists had shown a median forecast of a fall to 3.5% in November's annual inflation rate, though the BoE had pencilled in a slightly bigger drop to 3.4%.
Sterling dropped by around half a cent against the U.S. dollar after the data came out, which reinforced expectations for looser monetary policy.
Financial markets have been pricing in a more than 90% chance of the BoE cutting rates by a quarter point to 3.75% on Thursday, though many economists have said they see the decision as more finely balanced.
Wednesday's data showed services price inflation, which the BoE sees as reflecting as a guide to longer-term inflation pressures, fell to 4.4% rather than holding at 4.5% as economists and the BoE had expected.
Food and non-alcoholic beverage inflation dropped to 4.2% from 4.9% in October. The BoE has said it expects this to rise 5.3% in December, the highest in nearly two years.
Core CPI - which excludes more volatile food, alcohol, energy and tobacco prices - also slowed to 3.2% rather than holding at 3.4% as economists had forecast in the Reuters poll.
Last month the BoE's Monetary Policy Committee voted 5-4 to keep interest rates on hold, breaking the quarterly cadence of rate cuts in place since 2024 and economists expect a December rate cut by only a narrow 5-4 margin.
Of those members who opposed a cut in November, Governor Andrew Bailey looks most likely to switch votes as he said in minutes of the decision that he wanted to see further falls in price pressures "this year" before backing a cut.
British inflation has been higher than in other major advanced economies and in November the central bank forecast it would remain above its 2% target until the second quarter of 2027.
Since then, finance minister Rachel Reeves announced measures in her November 26 budget that will shift climate change costs away from levies on energy bills towards general taxation.
Reporting by David Milliken; Editing by William Schomberg
Source: Reuters