UK inflation fails to decline but GBP reaction muted

UK inflation rose faster than expected in the last month according to this morning’s CPI release which showed an increase of 3.0% in annualised terms. The print was inline with the prior reading but more importantly above the 2.9% forecast and therefore could be described as something of an upside surprise. The rise in the headline number can’t be dismissed as simply a by-product of an increase in the price of Oil as the core reading was also above consensus forecasts in rising to 2.7% and it appears that despite the recovery in the Pound over the last 12 months price pressures remain elevated and well above the 2% target.

The initial reaction in Sterling has been surprisingly muted with the Pound failing to make a sustained move higher despite the beat. In price action terms the currency looks a little soft of late, which first became evident with its inability to hold onto the gains seen immediately after the BoE rate decision on Thursday.

The Bank of England adopted a hawkish stance following last week’s meeting and with Gertjan Vlieghe, seen by many as the least dovish voting member for monetary policy, also talking up future rate hikes during a speech yesterday market expectations are elevated. This leaves plenty of scope for disappointment going forward and after failing to rally on another supportive economic event there could be some further downside ahead for the Pound which posted its largest weekly decline against the Buck in over 4 months on Friday night.