UK CPI makes December rate cut 'a fairly safe bet' as continued cooling expected
|As if the pound wasn’t already under enough pressure from pre-budget jitters, today’s October inflation figures will likely add further fuel to the sell-off.
Credit where credit’s due, it appears as though UK inflation did indeed peak in September, exactly as the Bank of England had foreseen. A continued cooling also appears to be a safe bet, with a high policy rate, a weakening labour market and softer domestic demand all set to keep consumer price pressures in check in the coming months.
We said following the November MPC meeting that the razor-thin vote meant that it would take very little to tip the balance in favour of a December cut. Today’s data may be enough of a catalyst to do just that, and swap markets now see around an 80% chance of a final reduction to the base rate by year-end.
MPC officials will, of course, still be glued to the details of next week’s Autumn Budget, but assuming it's as tax-heavy and unfriendly to growth as we expect, a December rate cut seems to be a fairly safe bet.
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