UK inflation fell strongly yesterday

Giles Coghlan LLB, Lth, MA Financial Source

UK CPI data came out firmer than expected at 0.2% vs 0.0% expected. However, although this beat expectations this was still a drop from July’s reading of 1.0%. Some of the reasons for the fall in inflation was the UK’s ‘eat out to help out scheme’. In this scheme restaurant meals were half price for people for a time over the summer. So, inflation should push up now that the scheme is over.

However, the jobs market in the UK is poised to worsen. A recent UK article forecasts that UK unemployment is going to be twice as worse as the Global Financial Crisis. 380,000 redundancies have been planned from May to July and that number could rise to 780,000. Check out the BBC article here. The figures were obtained from the Institute for Employment Studies (IES) through a freedom of information request. So, with potential unemployment ahead for the UK the return to 2.0% inflation is going to be a long road to travel.

This bearish outlook for the GBP, not to mention the associated Brexit risks which have ramped up, means that the BoE may increase asset purchases (QE) tomorrow, They may even signal easing into the next rate meeting. So, the risk is tilted to GBP selling heading into the decision today at 12:00 BST (11:00GMT).

Taking a look at the GBPAUD chart you can see that price has broken out of a descending triangle pattern on the daily chart. A bearish BoE will push the price lower, so this is one chart to watch.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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