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 per cent from 4.6 per cent 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 per cent. 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 US 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 per cent – more than any other Group of Seven advanced economy and the joint-highest increase in Western Europe.

BoE officials have been cautious about whether recent signs of cooling inflation truly represent a sign that persistent, longer-run price pressures are receding.

“This provides strong evidence that disinflationary pressures are building in the UK,” PwC economist Jake Finney said. “Headline, core and services inflation are all now materially below the Bank of England’s expectations in their last November Monetary Policy Report.”

The ONS said transport – and particularly motor fuels – was the biggest downward contributor to inflation in November.

A much smaller rise in food and drink prices than in November last year also helped, although they remain 27 per cent higher than two years ago.

Finance minister Jeremy Hunt said the data showed inflation pressures were being removed from the economy. Opposition Labour Party spokeswoman Rachel Reeves said people were worse off after 13 years of Conservative government.

Prime Minister Rishi Sunak, who is set to meet his promise to halve inflation this year, is expected to call a national election in 2024.

Core inflation, which strips out energy and food prices, showed an unexpectedly sharp drop, falling to 5.1 per cent from 5.7 per cent.

The rate of services inflation – which BoE officials pay particular attention to as a gauge of domestically-generated inflation – fell to 6.3 per cent from 6.6 per cent.

Separate data showed manufacturers’ raw materials costs were 2.6 per cent lower than a year earlier, the same pace of decline as in October and the joint-biggest since July. Producer output prices fell 0.2 per cent, slightly less than the 0.5 per cent decrease forecast by economists in a Reuters poll.