What's happened
UK inflation slowed in October, with consumer prices rising 3.6%, down from 3.8% in September. Citi suggests this could increase the likelihood of a Bank of England rate cut in December. Markets are watching upcoming US earnings and jobs data for further direction.
What's behind the headline?
The recent inflation slowdown in the UK signals a potential shift in monetary policy. Citi's survey indicates falling long-term inflation expectations, challenging the Bank of England's view that inflation expectations hinder rate cuts. If inflation continues to decline, the BoE will likely resume rate cuts in December, possibly reducing rates to 3.25% by mid-2026. This easing could support economic growth but risks reigniting inflation if not managed carefully. The market's reaction, including a slight decline in sterling and mixed equity movements, reflects investor anticipation of policy shifts. The upcoming US earnings and jobs reports will further influence global financial conditions, especially as markets weigh the possibility of US rate cuts and their impact on the dollar and Treasury yields.
What the papers say
Reuters reports that Citi's analysis suggests a higher chance of a December rate cut due to slowing inflation and falling inflation expectations, challenging the Bank of England's cautious stance. The Independent highlights that UK markets are increasingly optimistic about rate cuts, with analysts like Kallum Pickering and Sanjay Raja expecting a quarter-point reduction in December. Both sources agree that recent data supports a more dovish outlook, but they differ slightly in their emphasis—Reuters focusing on inflation expectations, while The Independent emphasizes market sentiment and analyst forecasts.
How we got here
UK inflation remained above the Bank of England's target earlier this year, prompting cautious rate decisions. Recent data shows inflation slowing, which analysts interpret as a sign that the peak has passed. The BoE paused rate cuts earlier this month amid concerns about sticky inflation, but market sentiment now leans toward easing monetary policy soon.
Go deeper
Common question
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