Unexpected Weaker Inflation May Clear Path for More Bank of England Rate Cuts in 2026, Says Berenberg

11:44 AM EST, 12/17/2025 (MT Newswires) -- The drop in the United Kingdom consumer price index inflation, from 3.6% year over year in October to 3.2% year over year in November, was larger than any forecaster anticipated, said Berenberg after Wednesday's data.

If not reversed, the decline in goods prices in November would put inflation on course to fall below the Bank of England's 2.0% target next summer, noted Berenberg.

Much faster disinflation than the BoE expected would clear the path for the central bank to provide more support to demand in 2026, stated Berenberg. Core consumer prices have increased by less than 2% year-over-year annualized, suggesting that excess underlying price pressures are indeed petering out.

After a 25bps BoE rate cut to 3.75% on Thursday, which is now guaranteed, the market priced in one more cut by mid-2026 with a 40% chance of a second before this inflation release. The implied probability of that second 2026 reduction is now up to 70%.

The incoming data supports the bank's recent shift to a weak demand, lower inflation narrative, which caused Berenberg to lower its end-2026 bank rate forecast from 3.50% to 3.00%.

The bank suspects investors are still under-pricing 2026 easing.

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