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.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
