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<p class="has-drop-cap">Inflation in the UK surprisingly <a aria-label="fell more than anticipated to 3.9% (opens in a new tab)" href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/november2023#:~:text=a%20year%20ago.-,The%20Consumer%20Prices%20Index%20(CPI)%20rose%20by%203.9%25%20in,of%2011.1%25%20in%20October%202022." target="_blank" rel="noreferrer noopener nofollow" class="deco-link">fell more than anticipated to 3.9%</a> in November, marking the lowest reading for the headline rate since September 2021. The data caught the Bank of England by surprise and may force it to begin cutting interest rates earlier to avoid further deterioration in the country’s economy. UK bond yields fell to multi-month lows on the report, while the country’s stocks rose higher. The sterling also fell against the US dollar.&nbsp;</p> 
<h3 id="uk-cpi-sees-abrupt-retreat-to-2-year-low">UK CPI Sees Abrupt Retreat to 2-Year Low</h3> 
<p>The UK inflation data for November has been released, surprising everyone.</p> 
<p>The headline consumer price index (CPI) hit 3.9% last month, down from the 4.6% reported in October and below the 4.4% expected by economists. The figure marked the lowest annual reading since September 2021.&nbsp;</p> 
<p>Month-on-month, inflation slipped 0.2%, while consensus estimates guided for a 0.1% increase. Core CPI, which disregards volatile energy, food, alcohol, and tobacco prices, came in at 5.1%, notably below the 5.6% estimate.&nbsp;</p> 
<p>According to the Office for National Statistics, the primary catalysts that drove down the prices include transport, recreation, culture, food, and non-alcoholic beverages.</p> 
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<h3 id="stocks-rise-bonds-down-to-8-month-low-after-cpi-report">Stocks Rise, Bonds Down to 8-Month Low After CPI Report</h3> 
<p>UK’s better-than-expected inflation data prompted an immediate reaction in the local markets.</p> 
<p>The country’s 10-year gilt yield plummeted to an 8-month low, losing around 11 basis points to 3.54%. At the same time, the FTSE 100 stock index rose almost 0.8% to 7,694, marking its highest point since September. This was the only major European stock index in the green on Wednesday.&nbsp;</p> 
<p>The British pound fell around 0.6% on the day against the US dollar to $1.26 after the CPI report. The dip likely came from increased bets that the Bank of England will begin cutting interest rates in 2024.&nbsp;</p> 
<p>Because it did not expect such an abrupt decline in inflation, last week, the central bank <a aria-label="reiterated its hawkish tone (opens in a new tab)" href="https://www.cnbc.com/2023/12/14/bank-of-england-holds-rates-says-rates-to-stay-high-for-extended-period.html" target="_blank" rel="noreferrer noopener nofollow" class="deco-link">reiterated its hawkish tone</a> as it kept the key rate unchanged at 5.25%. The strategy was to keep the borrowing costs higher for longer after <a href="https://tokenist.com/boes-75-bps-hike-takes-uks-key-rates-to-highest-level-since-2008/" rel="dofollow" class="deco-link">imposing</a> 14 consecutive rate hikes to bring down the <a href="https://tokenist.com/uk-inflation-hits-41-year-high-stoxx-europe-600-down-0-8/" rel="dofollow" class="deco-link">41-year high inflation</a>.&nbsp;</p> 
<p>Suren Thiru, ICAEW’s economics director, <a href="https://www.cnbc.com/2023/12/20/uk-inflation-rate-drops-to-3point9percent-in-november-well-below-expectations.html" target="_blank" aria-label="said (opens in a new tab)" rel="noreferrer noopener nofollow" class="deco-link">said</a> the abrupt CPI drop will show UK consumers that there is a “light at the end of the tunnel.” Furthermore, economic headwinds such as the “likely squeeze on wages from rising unemployment” and stagnating growth should also help maintain downward pressure on the underlying inflation drivers.&nbsp;</p> 
<blockquote class="wp-block-quote"> 
 <p>“These inflation numbers suggest that the Bank of England is too pessimistic in its rhetoric over when interest rates could start falling.”&nbsp;</p> <cite>– Thiru noted. </cite>
</blockquote> 
<p>As a result, Thiru said that a decaying economy could force policymakers to begin reducing rates by autumn, especially if inflation continues to decline.&nbsp;</p> <iframe src="https://tokenist.substack.com/embed" width="100%" height="320" style="border:1px solid #EEE; background:white;" frameborder="0" scrolling="no"></iframe> 
<p><em><strong>Do you expect BoE to start cutting rates earlier than expected after the latest inflation data? Let us know in the comments below. </strong></em></p> 
<p>The post <a rel="nofollow" href="https://tokenist.com/uks-november-cpi-data-shows-record-fall-in-inflation-puzzling-policymakers/">UK’s November CPI Data Shows Record Fall in Inflation, Puzzling Policymakers</a> appeared first on <a rel="nofollow" href="https://tokenist.com">Tokenist</a>.</p>

UK’s November CPI Data Shows Record Fall in Inflation, Puzzling Policymakers

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