fundamental alert

U.K. Inflation Falls the Most in 11 Years, Fueling Concern for Deflation

Tuesday, 18 November 2008 08:50:34 GMT  |  DailyFX Research

U.K. CPI came in better than expected in October, slipping to 4.5% y/y versus a market median estimate for 4.8% and down from a 16-year higher of 5.2% in September. CPI fell 0.2% on the month, with the largest downward effects coming from transportation costs and cheaper fuel. The core reading fell to 1.9% y/y from 2.2% in September. Meanwhile, the RPI dipped to 4.2% (median 4.6%) from 5.00% and RPIX fell to 4.7% (median 5.2%) from 5.5%. Overall, today's data confirms that inflation should now be coming down rapidly and that the BoE's main concern will be the risk for deflation.
Meanwhile, Pound (GBP) mixed after U.K. CPI slowed to 4.5% y/y in October, which was well below the consensus and is the first drop since August 2007. The biggest downward effect on CPI came from cheaper fuel and transport cost, according to the ONS. Cable firmed up to traded back in to 1.5015 versus 1.4980-85, while EUR-GBP moved up to 0.8418 before turning back in to 0.8395. Elsewhere, the U.K. Treasury said that there is no automatic right of access to government recapitalization scheme from bank. If capital is required it will carry terms and conditions, which include dividend policy, remuneration, lending and wider public issues. Banks will have to meet an eligibility criterion, which includes capitalization plans, a sustainable business model and clear funding profit and credible management. If the Treasury if asked to subscribe or underwrite bank share if would be at a discount to market price or placing price.

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