UK inflation data meeting expectations may not be enough for the pound

Author: Justin Low | Category: News

UK headline annual consumer inflation rests at three-year lows

Expectation today is for inflation to keep steady at +1.5% y/y with the core reading expected to also hold at +1.7% y/y - similar to November. The big question for the pound is, will that be enough to keep the BOE on the sidelines at the end of this month?

A miss here will certainly raise significant concerns as the BOE will surely need to act sooner rather than later. There is some reasoning to wait on post-election data to be sure but policymakers may instead see rising risks of falling into a low inflation trap.

That is certainly a spot that they would not want to be.

Saunders' comments earlier reaffirms similar sentiment among other policymakers and that will keep up the pressure on the pound - especially on a data miss later today.

On the flip side, I doubt any significant beat in consumer inflation would offer much reprieve for the pound and I would be looking to fade that. The UK economy is still largely struggling and I still reckon any post-election boost to businesses and confidence remains benign.

It's easy to see why the rates market is getting excited to price in a BOE rate cut this year and unless we see a miraculous recovery in UK economic conditions, one is surely going to come - the only question is when that will be.

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