– U.K. Consumer Price Index (CPI) to Increase Annualized 1.1%- Highest Reading Since October 2014.
-Â Core Rate of Inflation to Slow from Annualized 1.5% (Fastest Rate of Growth for 2016).
Trading the News:Â U.K. Consumer Price Index (CPI)
Another pickup in the U.K. Consumer Price Index (CPI) may boost the appeal of the British Pound and fuel a larger relief rally in GBP/USD as the Bank of England (BoE) drops its dovish outlook for monetary policy and becomes increasingly concerned about overshooting the 2% target for inflation.
What’s Expected:
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Why Is This Event Important:
Heightening price pressures may keep the BoE on the sidelines for the foreseeable future as the central bank now warns ‘monetary policy can respond, in either direction,’ and Governor Mark Carney and Co. may largely endorse a wait-and-see approach for 2017 as officials argue ‘there are limits to the extent to which above-target inflation can be tolerated.’ However, a marked slowdown in the core CPI may undermine the recent recovery in GBP/USD as the fundamental outlook for the U.K. remains clouded with high uncertainty, and the BoE may have little choice but to further insulate the real economy as the new government under Prime Minister Theresa May remain on course to depart from the European Union (EU).
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
Gross Domestic Product (YoY) (3Q A) |
2.1% |
2.3% |
|
Employment Change (3Mo3M) (SEP) |
76K |
106K |
|
Average Weekly Earnings ex. Bonus (3MoY) (AUG) |
2.1% |
2.3% |
The ongoing improvement in the labor market accompanied by signs of a stronger-than-expected growth may encourage U.K. firms to boost consumer prices, and another uptick in the headline reading for inflation may spark a bullish reaction in the sterling as market participants scale back bets for additional monetary support.
