Today’s unexpectedly high CPI growth and the above-consensus reading on core inflation means is now more likely another next month 25bp rate hike from the BOE (Bank of England).

Although these data all indicate high inflation and higher-than-expected costs for the UK, it should be taken into account that UK inflation has been on a downward trend in the past few months.

core CPI stayed at 6.2%, having been expected to slip back towards 6%. Headline inflation unexpectedly stayed in double-digits at 10.1%, though that will start to change in April when the effect of last year’s electricity/gas price hike filters out of the annual comparison. We expect headline CPI to reach the 8% area next month, 5% by summer and roughly 3% around year-end on current trends.

The core CPI printed at 6.2% as expected (prev was 6%), while headline inflation was unexpectedly at 10.1%. However, the effect of last year’s electricity/gas price hike will filter out in April, and headline CPI is expected to reach 8% next month, 5% by summer, and roughly 3% around year-end.

Core CPI is much more important for BOE. Because service-sector inflation trends are more persistent and relevant over the long term for monetary policy.

Instead, it is core goods inflation that is proving much stickier than expected.

with the clear disinflationary trend in durable goods, We doubt high inflation will last given improving supply chains, lower input costs, as well as the lower orders-to-inventory ratios we’ve seen in the surveys over recent months. The Bank of England itself said something similar in its most recent set of meeting minutes.

There is a clear trend of disinflation in durable goods, and the improving supply chains and lower input costs suggest that high inflation will not last. The Bank of England also expressed a similar sentiment in their recent meeting minutes.

However, the data was high enough to push the pound higher across all currency pairs.
The thing is, in this situation, we cannot be very confident about the continued growth of the pound, and even with this positive sentiment, we cannot propose a decline for the pound. because all the data is priced until next BOE meeting, For now, patience is the best option.

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