UK inflation now at its lowest level since September 2021.. |
The Pound has proven to be remarkably resilient so far today losing only 0.2% after the UK's February inflation result. Headline inflation has fallen from 4% to 3.4%, which was lower than the 3.5% forecast. The more important core inflation number fell from 5.1% to 4.5% and this too was lower than expected (4.6%). It's surprising to see GBP so unmoved, especially as money markets are now pricing in firmly for a July interest rate cut in the UK. I expect this may change tomorrow after the BoE interest rate decision and following comments from the MPC. There is a very real chance the BoE's target of 2% may be hit within 3-months and according to some economists it may not stop there. With energy prices due a huge drop off, we may see 1% inflation levels soon enough, which will make the BoE cut interest by far more than initially thought. We remain Sterling positive near-term, simply because both the EU & US should cut interest rates before the UK. But long-term, the Pound may struggle more than most expect, if the BoE cut interest rates to 3% instead of 4% next year.. |