GBP experienced a decline in response to the surprising news that inflation in the UK decelerated more than anticipated in November. Following the announcement by the Office for National Statistics (ONS) that inflation had decreased by 0.2% month-on-month in November—compared to October's 0% and below the market's expected 0.2% increase—the GBP/EUR exchange rate dropped by 0.40% to 1.1545.

In terms of year-on-year comparisons, CPI inflation for November stood at 3.9%, a decline from October's 4.6% and lower than the market's forecast of 4.3%. This unexpected turn of events led to a 0.38% decrease in the GBP/USD exchange rate, settling at 1.2660. Investors interpreted this as an indication that there had been sufficient progress in inflation for the Bank of England to consider potential interest rate cuts in 2024.

Specifically, the closely monitored services inflation level, a key concern for the Bank of England, eased from 6.6% year-on-year to 6.3% in November. Core inflation, which excludes energy and food, providing a more accurate reflection of domestic inflation pressures, increased by 5.1% year-on-year, a drop from the previous 5.7% and below the expected 5.5%. This unexpected dip was underscored by the fact that even the most conservative estimate among the 28 economists surveyed by Bloomberg was 5.2%.

The November outcome resulted from an unforeseen -0.3% month-on-month reading, down from October's 0.3% and below the consensus expectation of 0.2%. While GBP experienced a short-term setback, the decrease in inflation is favourable for UK consumers and enhances the overall economic outlook of the UK. In the medium term, this development is expected to provide support for GBP.