UK inflation quick analysis: BOE rate hike in August possible, assuming no cliff-edge Brexit


  • UK inflation slightly beat expectations with 1.9% YoY. 
  • The BOE has yet another reason to raise rates.
  • Brexit is in the way of everything, so a decision will have to wait.

The deceleration in inflation may have ended, or at least paused. The UK reported a slight acceleration from 1.8% to 1.9% in February after months of declines. Energy prices were responsible for the moderation and have contributed to the bump.

The data join the upbeat jobs report released on Tuesday, that showed a healthy growth rate of 3.4% in wages and a drop in the unemployment rate to 3.9%. 

Both publications add to the case for a rate hike in the UK. A rise in interest rates will, in turn, push the pound higher. However, the reaction on GBP/USD was muted. The Bank of England convenes on Thursday, and they will likely sit on their hands once again. 

Why? The answer should be evident to anyone following the news: Brexit. The uncertainty around Britain's exit from the European Union paralyzes political life and economic policymaking in Britain.

The latest from the Brexit front is that the UK will likely ask for a short Brexit extension, postponing the precipice by only several months. However, as long as Brexit is orderly, things will return to normal. Assuming a no-deal Brexit is avoided, the recent data suggest the BOE may raise rates as early as August.

The next Quarterly Inflation Report is due in May, and that will be too early for a hike. However, by August's QIR, more clarity is likely. If there is no severe disappointment in the data, the BOE is on track to hike, and GBP/USD will have more reasons to rise. 

More: GBP/USD Forecast: Traders go short as May goes for a short Brexit extension

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD bounces back from five-month lows

AUD/USD bounces back from five-month lows

AUD/USD ends its three-day decline on Wednesday, bouncing back from levels not seen since mid-November. Nevertheless, hawkish remarks from Federal Reserve officials and the influx of safe-haven flows could bolster the US Dollar and potentially limit the upside of pair in the short term.

AUD/USD News

USD/JPY trades with mild losses below 155.00 on risk-aversion

USD/JPY trades with mild losses below 155.00 on risk-aversion

USD/JPY trades with mild losses near 154.65 on Wednesday during the early Asian trading hours. The robust US economy and sticky inflation data have triggered the expectation that the Fed might delay the easing cycle to September from June, which provides some support to the US Dollar.

USD/JPY News

Gold ascends but remains shy of testing $2,400 amid hawkish Fed remarks

Gold ascends but remains shy of testing $2,400 amid hawkish Fed remarks

Gold prices edged higher late in North American session, gaining 0.22% following a hawkish tilt by Fed Chair Jerome Powell. Economic data from the United States was mixed, though Monday’s Retail Sales report and Powell’s remarks kept US Treasury yields higher, capping the yellow metal’s advance.

Gold News

Fetch.ai Price Prediction: FET must hold above $1.70 for strength

Fetch.ai Price Prediction: FET must hold above $1.70 for strength

Fetch.ai is trading with a bearish bias. It comes as chatter about the proposed integration with the Ocean Protocol and the SIngularityNET ecosystem remains fresh.

Read more

UK CPI March Preview: Inflation pressures to dissipate further, adding to bets of BoE rate cuts

UK CPI March Preview: Inflation pressures to dissipate further, adding to bets of BoE rate cuts

The March UK CPI report will be released by the Office for National Statistics on Wednesday. United Kingdom’s headline and core annual inflation are set to ease in March. The UK CPI report could hint at the BoE’s interest rate cut, rocking the Pound Sterling.

Read more

Majors

Cryptocurrencies

Signatures