Forex - UK Preview: due 20 Mar - Jan CPI inflation to stay at 24-month low of 1.8%; core rate to slip further


 16:59 (GMT) 12 Mar

  [Economic Data]

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We expect that the February CPI data will consolidate the drop seen last time around when the headline rate moved not only to below target and also to the lowest in two years. Indeed, lower fuel and energy prices meant that headline inflation dropped 0.3 percentage point to a 24-month low of 1.8% y/y and this is where we see it remaining in February.

UK Preview: due 20 Mar - Jan CPI inflation to stay at 24-month low of 1.8%; core rate to slip further (0101-JVMP-C01)

Such a result would reflect still-weak, if not even weaker, clothing and household goods inflation, this a continued testimony to the malaise on the high street as weak demand has forced retailers into even deeper discounting. Indeed, the y/y drop in clothing prices in January; at -1.3% was the most marked fall in almost a decade! This helps explain our view that the core rate may slip back to 1.8%!

UK Preview: due 20 Mar - Jan CPI inflation to stay at 24-month low of 1.8%; core rate to slip further (0101-JVMP-C02)

This low but stable February headline CPI is also in line with the most-recent updates from the MPC, ie the BoE also suggesting not only that the headline rate will remain at 1.8% in February and tick higher in March but stay below target until the end of the year, this perhaps being a little too confident an assertion that price pressures will re-emerge (at least without the impact of a further bout of sterling weakness). NB: April, however, may see a rise given a rise in household energy bills after the lifting of price cap!

Further soft price pressures will also be evident in the PPI numbers to be released alongside as well as in the house price data, the latter possibly becoming a more pertinent factor for the BoE as it wrestles with the downside risks that have emerged for the near-term outlook (for both prices and growth).


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