LONDON, Dec 20 Reuters Sterling fell against the dollar and euro after data showed British inflation fell in November and came in well below expectations, causing markets to bring forward bets on when the Bank of England will start cutting interest rates.

The pound was last down 0.56 at 1.2659, having been down around 0.15 immediately before the data . It also softened versus the euro, which was up 0.43 at 86.62 pence.

British annual consumer price inflation fell to 3.9 in November from 4.6 in October, the lowest pace since September 2021.

The reading was below all forecasts in a Reuters poll of economists, which had pointed to a rate of 4.4. Core inflation also cooled by an unexpectedly large amount, to 5.1 from 5.7.

That caused markets to bring forward their expectations of Bank of England rate cuts, and they are now fully pricing in a 25 basis point cut by May 2024, and show nearly a 50 chance of such a cut by March.

Expectations of the BoE39;s relative hawkishness in comparison with other major central banks has supported sterling in recent weeks.

Markets are right to be pricing a number of rate cuts for 2024. Investors now expect 140bps of cuts in 2024 after this latest downside surprise on inflation, starting in May. Thats maybe pushing it, and we still think the Bank will prefer to tread a little more cautiously with 100bp of cuts starting in August, said James Smith, developed markets economist at ING in a note.

But interestingly, this data has also seen…