LONDON - The British pound on Thursday extended losses after British consumer prices increased by less than forecast in October, prompting markets to bring forward their expectation for rate cuts from the Bank of England.

By 1201 GMT, the pound was down 0.2% at 87.52 pence per euro , having earlier traded at its weakest level since May 5 at 87.65 pence per euro.

Against the dollar, the pound was down 0.1% at $1.2405, having fallen 0.7% the day before, its biggest daily drop in three weeks.

On Wednesday, official data showed the consumer price index rose by 4.6% in the 12 months to October, its lowest reading in two years and below expectations in a Reuters poll of economists of 4.8%.

"If there are no new upside inflation surprises in the coming months, the Bank of England is unlikely to raise interest rates again," said Commerzbank FX analyst Michael Pfister.

The BoE last raised rates in August to 5.25%, maintaining the Bank Rate at that level for the subsequent two meetings.

Money market traders believe that UK rates have peaked, with the timing of rate cuts brought forward after Wednesday's inflation data.

According to LSEG data, around 23 basis points of easing is priced in by the June meeting, implying a more than 90% chance of a 25 basis point cut.

By the end of next year, markets price around 71 basis points of easing or almost three 25 basis point cuts.

The weakness in the pound has been driven by the repricing of BoE expectations following the inflation data, according to Kristoffer Lomholt, director, FX and rates strategy at Danske Bank.

"October CPI provided a downside surprise adding further fuel to the pricing of cuts in 2024," Lomholt said.

BoE policymaker Meg Greene warned on Thursday that global investors are missing the message that central banks have been pushing recently that interest rates will remain higher for longer.

"I think markets globally haven't really clocked on to this," Greene told Bloomberg Television, adding that the BoE was not talking about cutting rates.

Attention now was turning towards next week's Autumn Statement, where Britain's finance minister Jeremy Hunt will outline changes to fiscal policy, although analysts are not expecting large-scale changes to policy at this juncture.

"Our working assumption ahead of the Autumn Statement is that any potential major pre-election announcements will be held back until the 2024 Budget in March," RBC Capital Markets said in a note.

(Reporting by Samuel Indyk, Editing by William Maclean)