20 March 2024 | FXGT.com
UK Inflation Drops Below Forecasts
- Unexpected Decline in Inflation: February’s CPI report showed inflation at 3.4%, marking the lowest rate in over two years and slightly under the anticipated 3.5%. The core inflation rate also decreased to 4.5%, a near two-year low, falling short of the 4.6% forecast.
- Monthly Inflation Rebounds: On a month-over-month basis, the UK’s CPI rebounded to a 0.6% increase in February, against a forecast of a 0.7% rise and following January’s 0.6% decrease.
- GBP Response to Inflation Data: Despite speculations around earlier rate cuts following the inflation data, the GBP/USD pair saw a minor decline, dropping below the $1.27 level. Meanwhile, EUR/GBP held steady, indicating a cautious market reaction to the inflation report.
- Government Reaction: UK Finance Minister Jeremy Hunt commented that the February inflation data indicates a potential for improved economic conditions, fostering progress towards growth ambitions.
- Impact of Inflation Data on Rate Cut Expectations: The latest inflation data have shifted market expectations, moving the timeline for a potential BOE rate cut to as early as June, from a previously anticipated August, with the likelihood of rate reductions spread throughout the year.
- Bank of England’s Upcoming Decision: Despite the latest inflation figures, the Bank of England is expected to maintain interest rates at 5.25% in the upcoming meeting. The central bank had already adjusted its policy language last month, and today’s data further validates this shift.
- Anticipating BOE’s Next Moves: The market’s readjustment of expectations highlights the importance of closely monitoring the Bank of England’s communications and decisions in the coming months, as traders assess the potential timing and scale of interest rate adjustments.
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