Sterling Slips as UK Inflation Cools More Than Expected
UK inflation in October cooled more than anticipated, causing sterling to ease on Wednesday. The 12-month figure of 4.6%, reported by the Office for National Statistics, fell short of the forecasted 4.8%. This data has reinforced expectations that the Bank of England (BoE) will implement interest rate cuts by mid-2020.
Prior to the release of this information, the pound had experienced its biggest one-day rise against the dollar in a year. The boost came as US data revealed the smallest annual increase in underlying consumer inflation in two years, fueling belief that the Federal Reserve had completed its interest rate hikes.
Following the data release, sterling dropped 0.2% to $1.247 by 0703 GMT. This slight decrease was in contrast to the $1.2487 rate shortly before the figures were made public.
Money markets currently indicate the belief among traders that there is a high probability of BoE rate cuts starting as early as May next year.
The recent dip in UK inflation supports the view that the BoE will take action to stimulate the economy. Lowering interest rates is one of the tools the central bank uses to encourage borrowing and spending, which in turn can boost economic growth.
However, the decision to lower rates is not without potential drawbacks. Doing so can weaken the pound, making imported goods more expensive and potentially fueling inflation.
Although the BoE’s Monetary Policy Committee had previously stated that rates could be increased in the event of a smooth Brexit, the ongoing uncertainty surrounding the UK’s departure from the European Union has cast doubt on this possibility. The committee’s next monetary policy meeting is scheduled for November 19-20.
The recent data marks a significant development for the UK economy, particularly as it follows a period of higher inflation fueled by the depreciation of sterling since the Brexit referendum. The drop in the inflation rate could provide some relief to consumers, whose purchasing power had been eroded by rising prices.
Analysts will now closely monitor the BoE’s response to the cooling inflation figures. With the possibility of interest rate cuts on the horizon, the central bank’s actions will play a pivotal role in shaping the UK’s economic outlook for the coming months.
More detail via Daily Mail Online here… ( Image via Daily Mail Online )