The UK CPI report today is the one for September, with estimates seeing headline annual inflation creeping up to 4.0% (vs 3.8% in August) and core annual inflation up to 3.7% (vs 3.6% in August). If within expectations, that might seem like a case of more stubborn inflation in the UK. As such, it shouldn’t impact the BOE outlook at least for November by much.
As things stand, traders are pricing in ~85% odds of no rate change next month with just 11 bps of rate cuts priced by year-end.
Circling back to the inflation report for September, the devil will once again be in the details though.
While headline annual inflation might jump back up to 4%, analysts are expecting this to be largely attributed to base effects. In particular, driven by prices for airfares – which fell sharply in September last year and isn’t expected to drop as much this year. A much lower drop in petrol/energy prices this year are also part of that equation.
So even with a nudge back up to 4%, many are expecting this to be the peak in terms of the headline number we’ll be seeing.
As for core annual inflation, it is expected to be driven up amid a slight rise in both the goods and services components. The latter is the one to watch as it remains a sticking point for the BOE, still hovering closer to 5% for now. Similarly, food price inflation also continues to keep near 5% but continues to show signs of stabilisation and slowing. So, that will provide some comfort at least that price pressures are not exactly accelerating strongly going into Q4.
This article was written by Justin Low at investinglive.com.