In September, the UK’s inflation rate fell short of expectations, dipping to a three-year low. This has led market traders to speculate that the Bank of England may be more likely to cut interest rates further in the next two months, prompting a decline in the British pound against the US dollar on October 16.

The Office for National Statistics (ONS) reported that the annual growth rate of the Consumer Price Index (CPI) slowed to 1.7%. This figure was not only below the 1.9% forecast by Reuters analysts and August’s 2.2% increase but also marked the first time since April 2021 that inflation fell below the Bank of England’s target of 2%.

Furthermore, the core CPI, which excludes energy, food, and tobacco, recorded a year-over-year increase of 3.2%, down from 3.6% in August and below economists’ expectations of 3.4%.

Following the release of the latest inflation data, investors ramped up bets that the Bank of England will choose to cut rates for a second time during its decision meeting in November, with further cuts anticipated in December. Initially, traders estimated a roughly 50% chance of a 50 basis point cut by the end of the year, but that probability surged to 75% after the September inflation figures were disclosed.

On October 16, the British pound dropped by 0.7% against the US dollar, falling below $1.30 for the first time in two months. Additionally, the yield on sensitive-to-rate-policy UK two-year government bonds fell by nine basis points to 4.04%.

Dale Smith, an economist at Capital Economics, stated that a rate cut in November seems to be “set in stone,” with an increased likelihood of another cut during the December meeting.

J.P. Morgan Asset Management’s global market strategist, Karen Ward, commented that the latest inflation data, coupled with a decrease in wage growth, suggests that the Bank of England has “gradually tamed the inflation tiger.”