Yesterday, the Office for National Statistics of the United Kingdom released Consumer Price Index data for the month of January. The index showed an increase of 1.8 percent in UK prices compared to the same period in 2018. This deceleration in prices shows that economic activity in the second biggest European economy has lost some momentum, mainly caused by uncertainty related to the Brexit outcome. The latest GDP data confirms just that, with the UK economy expanding only 1.3 percent in the last quarter of 2018, the slowest growth since 2009.
This is the first time since 2016 that the CPI has presented a value below two percent - the medium term inflation target of the Bank of England. This may give some breathing space to the central bank, since there is no assurance on what the bank, led by Mark Carney, plans to do after Brexit. The central bank´s president already admitted to the possibility of raising rates so that the value of the Sterling may remain the same in case of an uncontrolled Brexit, but in the latest monetary policy statements, it was said that monetary policy "could move in either direction".
The latest Brexit developments tell us that reaching a deal in the next weeks looks unlikely, since it looks like the prime minister Theresa May will not be able to gain the parliament´s support. Until March 29 one thing seems to be certain, the Sterling may experience lots of volatility, with markets still hoping that a deal will be reached before the planned exit day, in order to avoid a hard Brexit.
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