THE TAKEAWAY: UK annual inflation remains at 2.7% for third month -> BoE calls for inflation to cool in 2013 -> Sterling temporarily drops
UK inflation remained at a 7-month high in December, according to the Office for National Statistics. Consumer prices were 2.7% higher than December 2011, matching expectations for the annual inflation to remain unchanged for the third consecutive month. Consumer prices were 0.5% higher in December on a monthly basis.
Producer input prices were 0.3% higher than December 2011, while producer output prices were 2.2% higher annually. A rise in the cost of utility bills was counterbalanced by a drop in transport costs. The retail price index was up 3.1% annually in December.
Higher inflation may be partially responsible for the Bank of England not raising its asset purchase target during its January meeting. The BoE maintains a 2.0% inflation target, and said that it expects inflation to cool in 2013. If the BoE would raise its asset purchase target, it could be Pound negative.
Sterling initially fell to 1.6075 against the US Dollar following the release of the as-expected UK inflation, but the pair is now trading closer to 1.6100. Resistance could be provided at 1.6089, by the 50% retracement of the rise from November’s low to January’s high. The key 1.6000 figure could provide support.
GBPUSD Daily: January 15, 2013
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