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U.K. headline inflation accelerates above expectations in January
The U.K. headline inflation recovered sharply in January. The consumer price inflation accelerated sharply to 1.8 percent year-on-year, a six-month high, from December’s 1.3 percent. This is above market expectations of a more modest rise to 1.6 percent.
Compared to expectations, most of the upside news saw stronger prices for core items of the inflation basket. Accordingly, the core rate of CPI inflation accelerated above expectations, rising to 1.6 percent year-on-year from prior month’s 1.4 percent.
The outturn for headline inflation was consistent with the Bank of England’s forecasts, which were embodied in last month’s Monetary Policy Report, albeit it expected a slightly stronger outturn for ‘core’ inflation, which to some extent explains the relatively muted market response to today’s numbers. Interest rate market continue to envisage a 75 percent chance of a cut in Bank Rate before the end of the year.
Nevertheless, the current rebound in domestic conditions is incompatible with current market expectations of a near-term cut in Bank Rate, noted Lloyds Bank in a research report.
“In that regard, tomorrow’s retail sales report for January and Friday’s release of the ‘flash’ PMIs for February bear watching for further evidence that activity trends have improved in Q1”, added Lloyds Bank.
Meanwhile, upside surprises were also recorded in CPIH and RPI. The year-on-year CPIH rate came in at 1.8 percent, a rise from 1.4 percent. RPI rose to 2.7 percent year-on-year.