Synopsis:

The latest UK inflation data, with October CPI showing mixed signals, reinforces expectations that the Bank of England (BoE) will refrain from cutting rates in December. ING anticipates the next rate cut to occur in February.

Key Points:

• UK CPI Data Highlights:

  • October's headline CPI rose to 2.3%, and core CPI climbed to 3.3%.
  • Services CPI, a key BoE focus, accelerated slightly from 4.9% to 5.0%, but core services inflation decelerated from 4.8% to 4.5%.

• BoE Inflation Perspective:

  • The rise in services CPI is driven by factors like airfares and rents, which the BoE views as less indicative of persistent inflation.
  • The deceleration in core services inflation is positive but not enough to prompt a rate cut in December.

• Market Reaction and GBP Outlook:

  • GBP/USD broke above 1.270 following the data release.
  • While this data reduces the likelihood of a December cut, the pound remains sensitive to further inflation data and BoE signaling.

• BoE Rate Cut Timing:

  • ING expects the BoE to wait until February for its next rate cut, assuming more evidence of cooling inflation emerges.

Conclusion:

The October UK inflation data supports ING’s view that the BoE will hold off on a December rate cut, with the next move likely in February. This aligns with current market dynamics, where GBP/USD has strengthened but remains influenced by evolving inflation trends and monetary policy expectations.