The latest UK Consumer Price Index (CPI) data for November showed weaker results than expected. The annual inflation rate fell to 3.2%, which is 0.3 percentage points below predictions. Services inflation slightly decreased to 4.4%. While housing services and rents eased, travel and transport costs increased. The Monetary Policy Committee (MPC) is still worried about stubborn inflation. The Bank of England’s (BoE) underlying services measure rose to 4.1%. This CPI report may reduce overall inflation concerns, especially as job data indicates a decline in labor demand.

Monetary Policy Implications

Before this week’s data, it was anticipated that a tight 5-4 vote would favor a rate cut, possibly with support from Governor Bailey. Now, a 7-2 vote favoring a cut seems possible, although some resistance due to ongoing inflation might continue. The BoE still has more room to lower rates compared to other G10 central banks. Predictions for February’s inflation are likely to be lower, hinting at another potential rate cut. This possibility isn’t currently reflected in the market, which may lead to lower front-end yields and put downward pressure on the pound. We expect the EUR/GBP exchange rate to rise in the coming months. Back in November 2024, unexpectedly weak inflation data triggered the Bank of England’s easing cycle. The significant drop in the annual rate to 3.2% eliminated any doubts and led to the first of multiple rate cuts. We are still facing the aftermath of that policy change today. Currently, the latest data from the Office for National Statistics (ONS) for November 2025 shows headline CPI at 2.1%. However, the core issue of persistent services inflation remains, at 3.8%. This resembles concerns from a year ago when stubborn inflation pressures kept some MPC members cautious. This situation suggests that the final steps towards controlling inflation will be the most challenging.

Market Outlook

This ongoing services inflation occurs alongside a noticeable economic slowdown. The GDP growth for the third quarter of 2025 was confirmed at just 0.1%. With the economy stalling, the MPC has even more reason to focus on growth rather than just eliminating inflation. This indicates that the BoE still has more cuts to make compared to other G10 peers. For traders in derivatives, this outlook implies positioning for lower UK front-end yields in the upcoming weeks. As the interest rate gap between the UK and other regions, such as the Eurozone, widens, the pound is likely to face more downward pressure. We see potential for EUR/GBP to increase as we move into the new year. Create your live VT Markets account and start trading now.

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