UK Inflation Decelerates Ahead of the BoE Policy Decision

UK Inflation Deceleration

Price pressures showed some stickiness at the turn of the year, in a worrying signal, following the sharp deceleration from the double-digit 40+ years peak of October 2022. Today's data though revealed a resumption of the cooling momentum, as headline inflation came in at 3.4% y/y, the slowest pace in more than two years. Similarly, Core CPI moderates to 4.5% and the lowest since the start of 2022.

The CPI report comes just a day ahead of Thursday's policy decision by the Bank of England, which is widely expected to keep rates at 5.25%. The progress on inflation, the economic weakness and the 515 basis points of cumulative tightening have helped policymakers stay in the sidelines over the past four meetings and point to peak rates. [1]

However, officials don't expect to reach the 2% target before 2026, despite projecting a temporary fall to that level in the second quarter of the current year. As such, they have called for sustained restrictive stance and Governor Bailey wants "more evidence" that inflation "will fall further and stay low", before lowering interest rates [2]. On the other hand, the BoE's forecast are conditioned on a market-implied rate of 4.2% this year, which suggests nearly 100 basis points of cuts this year. Speaking on CNBC after the last meeting, Mr Bailey had not objected to this pricing. [3]

Trade the News: View our Economic Calendar

The Bank of England is known for its lack of guidance, unclear messaging and divisions amongst policymakers, but markets will be looking forward to more hints around the timing of the expected rates cuts.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 20 Mar 2024 https://www.bankofengland.co.uk/monetary-policy-report/2024/february-2024

2

Retrieved 20 Mar 2024 https://twitter.com/bankofengland/status/1753048464584327252

3

Retrieved 29 May 2024 https://www.cnbc.com/video/2024/02/01/watch-cnbcas-full-interview-with-the-bank-of-englandas-andrew-bailey.html

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