UK inflation lower again

The pound was on the back foot for a brief time yesterday after the release of weaker than expected inflation data out of the UK, though it settled down again subsequently and this morning is trading at about 85.5p against the euro and at around $1.3050 against the dollar. The latter, meanwhile, is a touch softer against the single currency at $1.1150, as the US and China finally sign the interim trade deal agreed late last year

The annual rate of inflation in the UK fell further in December to stand at 1.3%, well below the Bank of England’s 2% target. The combination of below-target inflation and sluggish economic growth recently seems to have persuaded a good number of members of the Bank’s Monetary Policy Committee (MPC) – judging by their recent comments – that a cut in interest rates may now be necessary and, as such, the market is pricing in a large probability of a 25bps at the MPC’s next meeting later this month (January 30th)

The latest (December) RICS survey of the UK housing market points “to an uplift in sentiment following the result of the General Election…sales expectations have risen sharply and a number of key activity metrics have moved into positive territory for the first time in several months”

While the market showed little enough reaction to the signing of the US-China trade deal, to the extent that escalating trade tensions between the two through much of 2019 weighed on the global economy last year, this truce must represent some kind of positive for the year ahead

Data due today include jobless claims and retail sales in the US