Sterling loses value after cold UK inflation data – Markets ReadingS


LONDON: Sterling fell on Wednesday after data showing British inflation cooled more than forecast in October strengthened expectations that the Bank of England (BoE) will cut interest rates by the middle of next year.

Britain’s consumer price index (CPI) rose 4.6% in the 12 months to October, up from a 6.7% increase in September, according to the Office for National Statistics.

This was the lowest reading in two years and below forecasts of 4.8%. Sterling was last down 0.2% at $1.2471 as of 0724 GMT, having been at $1.2487 shortly before the data.

The euro rose 0.1 percent against the pound to 87.135 pence. Core inflation, which excludes food and energy prices, also rose less than expected at 5.7%, compared with 6.1% in September, and was below forecasts for a reading of 5.8%.

“This is a large decline in overall CPI, but was widely expected due to annual impacts and falling energy prices; “It’s still good news, confirming the downward trend in inflation,” Richard Garland, chief investment strategist at Omnis Investments, said in a note.

“This likely means the bank is well positioned to start cutting rates in late 2024, but this is highly dependent on the strength of the labor market and the economy,” he added.

Inflation has been on a downward path since last October’s four-decade high of 11%, but it has proven more stubborn in Britain than elsewhere and is still well above the Bank of England’s target rate of 2%.

Chancellor Rishi Sunak’s government this year pledged to halve inflation by the end of 2023, without specifying an exact level.

Sterling remains flat after UK wage data; Focus on US inflation

On Wednesday, the finance ministry said it had achieved that goal. “We said in January that we would halve inflation.

We did this today; inflation has now reached 4.6 percent,” the government’s Treasury department said on social media platform X.

Meanwhile, the pound reached a two-month high the previous day, making its biggest single-day rise against the dollar in a year, following US data showing the smallest annual increase in core consumer inflation in two years.

The figures strengthened the view that the US Federal Reserve has probably finished increasing interest rates. Money markets show investors believe there is a good chance the BoE could start cutting interest rates by May next year.

But BoE chief economist Huw Pill said on Tuesday that a drop in inflation to just under 5 percent would still leave inflation “very high” even if it represented a reduction in price growth by more than half last year.

The BoE has sought to emphasize that it is nowhere near cutting interest rates from 15-year highs, even as the economy nears recession.

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