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British Pound Drops as Inflation Turns Negative

British Pound Drops as Inflation Turns Negative

Oded Shimoni, Junior Currency Analyst

Talking Points:

  • The British Pound lost more than 0.35% versus the US Dollar
  • UK’s Core CPI at 1.0%, below expectations. Headline CPI drops to negative -0.1%
  • Weaker growth outlook in the UK

The UK’s Consumer Price Index (CPI) fell below expectations today, as the reading showed an annual drop of 0.1% percent, below economists’ forecasts for inflation to remain unchanged at 0.0 percent after stagnating in August. Core CPI remained unchanged at 1.0 percent below expectations for a rise to 1.1 percent.

Headline inflation remains well below the BoE’s 2 percent target. In their latest rate decision, the BoE’s Monetary Policy Committee (MPC) voted to maintain the Bank rate at 0.5 percent. The MPC signaled the “dampening influence” of the sterling’s appreciation as a factor contributing to core inflation being subdued at 1 percent. Headline CPI weakness is mostly explained by higher energy prices. The latest numbers reinforce the BoE’s outlook for weaker growth in the UK’s economy. With the headline figure turning negative and core CPI remaining stagnant, it appears the market thinks the BoE is far from raising interest rates from a record low of 0.5 percent, subsequently leading to the Pound’s drop by more than 0.35 percent versus the US Dollar.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.