Slowing inflation fuels concerns about a cooling UK economy

UK inflationAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTSlowing inflation fuels concerns about a cooling UK economyData bolsters expectations that Bank of England will cut interest rates on ThursdayNovember’s 3.2 per cent inflation reading was sharply below the 3.5 per cent forecast in a Reuters poll of economists © FT montage; BloombergSlowing inflation fuels concerns about a cooling UK economy on x (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on facebook (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on linkedin (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on whatsapp (opens in a new window) Save Slowing inflation fuels concerns about a cooling UK economy on x (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on facebook (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on linkedin (opens in a new window)Slowing inflation fuels concerns about a cooling UK economy on whatsapp (opens in a new window) Save Sam Fleming and Valentina Romei in LondonPublishedDecember 17 2025Jump to comments sectionPrint this pageStay informed with free updatesSimply sign up to the UK inflation myFT Digest -- delivered directly to your inbox.The biggest undershoot in UK inflation in at least a year has added to signs of a cooling economy, economists warned on Wednesday, as households restrain spending and the labour market sputters. November’s 3.2 per cent inflation reading was sharply below the 3.5 per cent forecast in a Reuters poll of economists.Analysts said the numbers reflect an economy being held back by faltering consumer demand and subdued business confidence, adding to arguments for the Bank of England to lower interest rates by a further quarter-point on Thursday. More rate cuts are likely in the new year given the UK’s sluggish state, they added. “It’s hard to dispute the raft of data we have had paints a more gloomy picture,” said Hetal Mehta, an economist at wealth manager St James’s Place. This confirmed an established pattern of UK growth losing momentum in the second half of the year, she added. “When you take into account the slowing in the labour market and the inflation pressure coming off a bit, it does suggest a cooler economy.”The BoE is now widely expected by traders to announce a cut in its key rate to 3.75 per cent on Thursday, the sixth reduction since the rate-cutting cycle began last year. Andrew Bailey, BoE governor, said in the Monetary Policy Committee’s November meeting that there is evidence of “building slack” in the economy, which should pull inflation lower. He put some stress on a BoE “weaker demand scenario” in which recent economic shocks such as the pandemic and energy crisis may have “persistently raised households’ risk aversion, resulting in a desire to build up greater precautionary savings”. The latest official figures confirm that after a firm start to the year GDP has been flatlining at best. Output fell by 0.1 per cent in the three months to October, in a slowdown that analysts said was partly attributable to consumer and business caution ahead of chancellor Rachel Reeves’ tax-raising November Budget. Some content could not load. Check your internet connection or browser settings.The weakness was partly down to faltering momentum in sectors that had previously seen strong growth. Output of professional, scientific and technical activities, for example, dropped by 1.6 per cent in the three month period, the largest contraction since the summer of 2020, when strict Covid-19 restrictions were still in place. Similarly, computer programming, consultancy and related activities registered a 3.6 per cent fall in the month of October alone — a sharp departure from their strong trend in recent years. As a result, the services sector, which accounts for about 80 per cent of the economy, registered no growth in the three months. Manufacturing output was also down 0.7 per cent in the three months to October, with car production making only a partial recovery from the fall in September when a cyber attack on Jaguar Land Rover hit production. Alongside this the jobs market is showing clear signs of deteriorating. Payroll employment fell by 149,000, or 0.5 per cent, in the year to October, according to the latest numbers from the Office for National Statistics, while unemployment hit 5.1 per cent — the highest level since January 2021.That said, rapidly slowing inflation and falling interest rates will offer some relief to households whose finances have been pressured by the high cost of living ever since the post-Covid price surge. UK workers are expected to see real wage growth for a third straight year in 2026, forecasters say. Earnings have outpaced inflation since mid-2023 — matching the longest stretch of real pay growth since the financial crisis.In November, the Office for Budget Responsibility revised up its wage growth estimates for 2025 and 2026 and predicted real earnings will rise year on year until the end of 2027.George Buckley, economist at Nomura, said there were “downside risks” to inflation that could pave the way to steeper reductions in borrowing costs in 2026. He currently expects a cut by the BoE on Thursday and another in April 2026, with CPI inflation falling to the BoE’s 2 per cent target by the middle of 2026. “If disinflation is sustained it could mean more and quicker loosening than we currently envisage,” said Buckley. “Today’s [inflation] numbers are encouraging, with the downside misses being based on a broad-based slowing.”Reuse this content (opens in new window) CommentsJump to comments sectionPromoted Content Follow the topics in this article UK inflation Add to myFT Bank of England Add to myFT Valentina Romei Add to myFT Sam Fleming Add to myFT Comments