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Economists believe interest rates are set to be cut before Christmas after inflation hit an eight-month low in November.
The Bank of England is widely expected to cut borrowing costs to 3.75% from 4% when it announces its next decision on Thursday.
This will bring borrowing costs down to their lowest rates since early February 2023.
experts It said the bank’s Monetary Policy Committee (MPC) would be encouraged by recent economic data to cut rates at its final meeting of the year.
Notably, the decision has been taken following the release of the latest inflation data, which showed a bigger decline in Consumer Price Index (CPI) inflation than analysts had expected.
The CPI rate fell to 3.2% in November from 3.6% in October. National Statistical Office (ONS) said.
This was mainly driven by food and beverage inflation which declined to 4.2% from 4.9%, while alcohol and tobacco prices also eased.
Danny Hewson, Head of Financial Analysis aj bellSaid: “Although 3.2% is still well above the Bank of England’s target, it is expected to be the final piece of the puzzle that will enable the rate setters to give their festive gift to borrowers with an interest rate cut on Thursday.”
The bank is tasked with bringing inflation down to the 2% target level.
Ms Hewson said: “There are still massive question marks about what 2026 will bring and the market does not expect the Bank of England to cut interest rates more than once or twice over the next year, so borrowers hoping to see a return to the ultra-low levels many have become accustomed to will have to adapt.”
James Smith, developed markets economist EngSaid the sharp decline in November inflation had given the “green light” to a December rate cut.
“Christmas has come early for the people at the Bank of England, with inflation in November coming in well below expectations,” he said.
Mr Smith said he expected inflation to rise in December, partly due to seasonal increases in airfares.
However, he said, “the latest decline in inflation fits into a broader set of evidence that suggests price pressures are easing”, adding: “We expect headline inflation to fall closer to 2% by May.”
He is predicting two more interest rate cuts in February and April next year.
Along with the decline in inflation mpc The expectation is that other signs that the economy is cooling will be addressed, including rising unemployment, slow wage growth and stagnant economic growth.