Inflation unexpectedly falls to 3.2%

17th Dec 2025 07:00

(Sharecast News) - Inflation fell by more than expected in November, official data showed on Wednesday, to the lowest level for eight months.

According to the Office for National Statistics, the consumer prices index rose by 3.2% in the 12 months to November, down from 3.6% in October. Consensus had been for 3.5%.

The Bank of England will announce its latest decision on interest rates on Thursday, and the fall will further bolster arguments for a cut. Should that be the case, it would be the fourth this year.

However, inflation still remains above the BoE's long-term 2% target.

Food and non-alcoholic beverages - which normally rise at this time of the year - made the largest downward contributions to inflation in November, the ONS said. Prices rose by 4.2%, down from 4.9% in October.

The biggest downward effects were seen in the prices of cakes, biscuits and breakfast cereals. Softer prices in dairy products and sugar - including jams and confectionary - also contributed.

Grant Fitzner, chief economist at the ONS, added: "The increase in the cost of goods leaving factories slowed, driven by lower food inflation, while the annual cost of raw materials for businesses continued to rise."

Core inflation, which strips out the more volatile elements of energy, food, alcohol and tobacco, fell to 3.2% from 3.4%.

Including owner occupiers' housing costs, CPIH rose by 3.5% in November, compared to 3.8% a month previously.

Kris Hamer, director of insight at the British Retail Consortium, said Black Friday deals would have helped drive down inflation.

"With many customer kicking off their Christmas shopping, there will have been relief to see the price of clothing and footwear fall. And while higher labour and commodity costs have pushed up food inflation over 2025, bigger promotions ahead of Christmas helped to bring this figure down."

Matt Swannell, chief economic advisor to the EY Item Club, said: "The Monetary Policy Committee will likely cut Bank Rate by 25 basis points at Thursday's meeting.

"The minutes of [the last] meeting suggested more evidence that inflation was falling would be enough to warrant a further rate cut, and with the inflation reading well below the 3.8% rate seen ahead of November's meeting, this should fulfil that criteria."

Looking ahead, he continued: "Inflation is expected to drift lower through 2026. The contributions of the food and energy categories are set to weaken further, reflecting the lagged pass-through of stronger sterling and, in the case of energy, the government removing some levies from domestic bills.

"But the slowdown in services inflation will be more gradual."

James Smith, developed markets economist, UK, at ING, said: "Christmas has come early for the doves at the BoE.

"That's thanks to a sizeable drop in food inflation, down to 4.2% from 4.9%, mirroring a similar trend across the Eurozone. This matters, because hawkish officials are concerned that the recent spike in headline inflation - particularly around food - could seep into consumer expectations and fuel a more persistent bout of price pressure.

"Those concerns now looking increasingly overblow."

As well as forecasting a reduction this week, ING is predicting two further trims in February and April 2026.

Bank Rate currently stands at 4%.