THE TAKEAWAY: UK inflation reported at 2.7% in November -> Inflation still higher than the 2% BoE target -> Sterling trading unchanged
UK annual inflation remained at a six month high in November according to the UK Office for National Statistics. Consumer prices rose 2.7% from November 2011, as the steady inflation met expectations. Consumer prices were also 0.2% higher on a monthly basis, a drop from October’s 0.5% rise in prices.
The largest upward pressure on inflation came from food and beverages and housing, while the largest downward pressures came from motor fuels and furniture. Producer prices (output) fell 0.2% over November, and the PPI was 2.2% higher than November 2011. Retail prices were unchanged in November.
The Bank of England did not raise its asset purchase target in the December meeting despite predictions for upcoming decline in the UK economy, as the inflation rate has remained above the bank’s 2% target. The bank has also mentioned the success in its funding for lending scheme as a deterrent for further stimulus, and as long as the inflation remains above 2%, chances of further monetary stimulus remain lower. A rise in the asset purchase target would probably be Sterling negative in forex trading.
The Pound did not significantly react to the as expected inflation rate. GBPUSD is currently trading around 1.6221; resistance could be provided by a previous high around 1.6271, and support could be provided by a previous high and resistance around 1.6174.
GBPUSD Daily: December 18, 2012