The latest inflation data from the UK has shown a small decrease on the prior reading and adds additional support to the notion that rising price pressures are beginning to wane. A CPI Y/Y reading of 3.0% remains well above the 2.0% target but in falling from the 3.1% seen last time out the BoE will be hopeful that a high-water mark has been reached. The core reading is even more pleasing for Carney & co with a print of +2.5% Y/Y below both the +2.6% forecast and the prior 2.7%.
Given that the largest single contributory factor for above-target inflation has been the slump in the pound since the Brexit vote, the recent appreciation that saw sterling hit its highest level against the US dollar since the referendum just yesterday, should mean that going forward lower inflation can be expected. With today being just one day shy of the anniversary of Theresa May’s Brexit speech which sent the pound surging sharply higher from its lowest post-Brexit vote level (if we ignore the October 2016 flash crash) and sowed the seeds of the ensuing recovery the inflationary effects of a weak pound should continue to lessen in the months ahead.
In the immediate market reaction the pound has dipped a little lower to trade at its lowest level of the day at 1.3760 last.