UK inflation came in softer than expected

United Kingdom inflation came in softer than expected.Headline prices fell 0.1% y/y (cons: 0.0%y/y) - the first time CPI has fallen over the year since official records began in 1996. 

The core reading was similarly weak at 0.8% y/y (cons: 1.0% y/y) - the lowest since 2001. The ONS notes that 'the largest downward contribution came from transport services - notably air and sea fares, with the timing of Easter this year a likely factor'. 

As such, too much weight is not put into the reading particularly as transportation cost may not have picked up the rebound in fuel prices. GBP traded weaker as a result with the 2016 strip of short sterling futures down ~5bps. 

The Governor used the May Inflation Report to reiterate that the next move in rates is still expected to be upward, and the IR press conference indicated that this is the MPC's consensus view. 

"The MPC seems to be in no rush to hike rates, as the Bank's CPI projection based on market-implied rates is close to its target. We expect this message to be repeated this afternoon", says RBC Capital Markets.