Pound hits 10-month low as UK inflation misses

The UK consumer price index unexpectedly came in flat at 2.4% Y/Y for June, and considering that an increase to 2.6% was expected this is a negative shock for the pound. Sterling has slipped to its lowest level in 10 months against the US dollar in the immediate reaction and the markets are now once more questioning whether the BoE will deliver an August hike.

The reading itself remains notably above the 2% inflation mandate for the BoE but it does appear to be heading back towards target after peaking at 3.1% last November. Today’s release was the 4th time in the last 5 releases that this metric has come in lower than expected and Governor Carney may now have greater belief that inflation can return to target without the need for any additional tightening.

Given that one contributing factor to the above target inflation has been an increasing oil price some believe the core reading, which ignores crude and other volatile aspects, provides a truer read of inflationary pressures and this fell to 1.9% - below the BoE target.

Those looking for a reason why the bank should hold off next month have been frustrated of late with Theresa May just about surviving another key event yesterday evening, and the other data being fairly supportive but today’s miss is the first real indication that hawks could well be disappointed once more in August.