LONDON – Consumer price growth eased in the UK last month, reducing pressure on households and increasing the chances the Bank of England will lower interest rates at its final meeting of the year next month.
Headline inflation slipped to 3.6% y/y last month versus 3.8% in September, but the decline fell short of the 3.5% forecast by economists. The fall was driven in part by smaller hikes in gas and electricity prices and lower accommodation costs.
Core consumer price growth decreased in line with forecasts to 3.4% compared to 3.5% in September. Services inflation eased to 4.5%.
Following this month’s rate hold, which was decided by a single vote, BoE officials predicted that annual headline inflation had likely peaked at 3.8%, where it held from July to September. Others agreed. Matt Swannell, chief economic advisor to the EY ITEM Club, said:” Inflation has now passed its peak. Headline inflation is expected to remain at similar levels over the final months of this year before drifting downwards through next year.”
However, British monetary policymakers have further concerns. Even if price growth has peaked as noted, BoE officials said they want further evidence of more cooling before cuts are made, a point repeated often by bank Governor Andrew Bailey. The monetary policy committee noted that underlying disinflation continues, supported by weaker pay growth, easing services price pressures, and soft demand.
Furthermore, signals of an economic slowdown are emboldening the doves. For example, quarterly GDP of 0.1% in the three months to September disappointed.
Every little bit helps
The bank “now has a clearer path for a Christmas rate cut,” wrote Sanjay Raja, chief UK economist at Deutsche Bank. “With the labour market softening more than expected, GDP growth weaker than the Bank of England projected, and (underlying) inflation tracking a little lower than BoE expectations, we think Governor Bailey – who will likely have the deciding vote for December – will feel more confident about cutting bank rate below 4%.”
The bank chief's vote broke a tie earlier this month to leave the bank’s benchmark unchanged, with the other side voting for a quarter-point reduction.
EY ITEM Club’s Swannell said, “The minutes of November’s MPC meeting intimated that tighter fiscal policy and further progress on inflation in the two releases before the December bank rate decision would be key to whether there will be a majority in favour of a rate cut. Today's data fulfils one of those criteria and keeps the MPC on track to deliver a 25-basis point rate cut next month.”
Traders on the swap market expect a more than 80% chance of a 25bp rate cut next month.
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session_info.http_referrer = data.http_referrer;
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var months = ['Jan','Feb','Mar','Apr','May','Jun','Jul','Aug','Sep','Oct','Nov','Dec'];
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data_array.date = current_time;
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- Decline in price growth less than expected
- Traders increase bets on 25bp cut
By Eric Culp, European Editor
LiveSquawk News
@eculp.bsky.social
@EricCulpLS
LONDON – Consumer price growth eased in the UK last month, reducing pressure on households and increasing the chances the Bank of England will lower interest rates at its final meeting of the year next month.
Headline inflation slipped to 3.6% y/y last month versus 3.8% in September, but the decline fell short of the 3.5% forecast by economists. The fall was driven in part by smaller hikes in gas and electricity prices and lower accommodation costs.
Core consumer price growth decreased in line with forecasts to 3.4% compared to 3.5% in September. Services inflation eased to 4.5%.
Following this month’s rate hold, which was decided by a single vote, BoE officials predicted that annual headline inflation had likely peaked at 3.8%, where it held from July to September. Others agreed. Matt Swannell, chief economic advisor to the EY ITEM Club, said:” Inflation has now passed its peak. Headline inflation is expected to remain at similar levels over the final months of this year before drifting downwards through next year.”
However, British monetary policymakers have further concerns. Even if price growth has peaked as noted, BoE officials said they want further evidence of more cooling before cuts are made, a point repeated often by bank Governor Andrew Bailey. The monetary policy committee noted that underlying disinflation continues, supported by weaker pay growth, easing services price pressures, and soft demand.
Furthermore, signals of an economic slowdown are emboldening the doves. For example, quarterly GDP of 0.1% in the three months to September disappointed.
Every little bit helps
The bank “now has a clearer path for a Christmas rate cut,” wrote Sanjay Raja, chief UK economist at Deutsche Bank. “With the labour market softening more than expected, GDP growth weaker than the Bank of England projected, and (underlying) inflation tracking a little lower than BoE expectations, we think Governor Bailey – who will likely have the deciding vote for December – will feel more confident about cutting bank rate below 4%.”
The bank chief's vote broke a tie earlier this month to leave the bank’s benchmark unchanged, with the other side voting for a quarter-point reduction.
EY ITEM Club’s Swannell said, “The minutes of November’s MPC meeting intimated that tighter fiscal policy and further progress on inflation in the two releases before the December bank rate decision would be key to whether there will be a majority in favour of a rate cut. Today's data fulfils one of those criteria and keeps the MPC on track to deliver a 25-basis point rate cut next month.”
Traders on the swap market expect a more than 80% chance of a 25bp rate cut next month.
Sign up for LiveSquawk and receive a discount with the code LSQEC$