UK inflation falls to 3.9 from 4.6 in October
Big drop surprises economists, backs BoE rate cut bets
BoE interest rate cut now fully priced in for May
UK inflation no longer an outlier in international terms

LONDON, Dec 20 Reuters British inflation plunged in November to its lowest rate in over two years, prompting investors to pile further into bets that the Bank of England will cut interest rates next year.

The annual rate of increase in the consumer prices index dropped to 3.9 from 4.6 in October, pushed down in part by petrol prices, for its lowest reading since September 2021, the Office for National Statistics said on Wednesday.

The headline inflation reading was below all forecasts in a Reuters poll of economists which had pointed to a figure of 4.4. Core and services measures of inflation closely watched by the BoE also dropped.

Investors moved to fully price in a BoE rate cut by May 2024. The pound shed almost half a cent against the U.S. dollar, falling from 1.271 to 1.266. British government bond yields also fell sharply.

British inflation no longer looks like such an outlier in international terms, with its headline rate of inflation now matching that of France.

However, British consumer prices have risen since 2020 by almost 21 more than any other Group of Seven advanced economy and the jointhighest increase in Western Europe.

BoE officials have been cautious about whether recent signs of cooling inflation truly represent a sign that persistent,…