GBP Shrugs off Weaker UK Inflation as Prospect of No-Deal Brexit Recedes
GBP price, news and analysis:
- The headline measure of UK inflation fell to 1.8% year/year in January, down from 2.1% in December and below analysts’ consensus forecast of 2.0%.
- However, GBP was underpinned by private comments Tuesday from the UK’s chief Brexit negotiator implying that Members of the UK Parliament would have to choose between a reworked Brexit deal or a potentially significant delay.
- That suggests the chances of a no-deal Brexit are receding: a positive for the Pound as the March 29 deadline approaches.
UK inflation eases in January
UK inflation fell to 1.8% year/year in January, down from 2.1% in December, below analysts’ consensus forecast of 2.0% and under the Bank of England’s 2.0% target. Core inflation was unchanged at 1.9%, as predicted.
The latest 1.8% figure is the lowest for two years and the Office for National Statistics attributed the drop to cheaper gas, electricity and petrol prices, partly offset by cheaper ferry tickets and air fares.
In theory, the data make a tightening of UK monetary policy less likely, are therefore negative for the Pound and back up comments Tuesday by Bank of England Governor Mark Carney, who said provided economic expansion continues a modest tightening of monetary policy over time will likely be sufficient to achieve the central bank’s inflation target.
Nonetheless, the principal driver of GBP remains Brexit and the Pound fell only marginally Wednesday as concerns eased that the UK will leave the EU on March 29 without a deal.
GBPUSD Price Chart, Daily Timeframe (September 21, 2018 – February 13, 2019)
Chart by IG (You can click on it for a larger image)
Robbins says May’s deal or long delay
Sterling’s better tone Tuesday was due principally to a private comment by Olly Robbins, the UK’s chief Brexit negotiator, who was reported to have said that the British Parliament will face a choice between UK Prime Minister Theresa May’s Brexit deal or a long extension of the March 29 deadline.
Robbins was reportedly overheard by an ITV correspondent at a hotel bar in Brussels saying lawmakers would have to choose whether to accept a reworked Brexit deal or a potentially significant delay. “Got to make them believe that the week beginning end of March... Extension is possible but if they don’t vote for the deal then the extension is a long one,”the broadcaster quoted Robbins as saying.
Brexit Secretary Steve Barclay said later that he did not want to comment on conversations heard second hand in a noisy bar but the government’s position was that the UKwould leave the EU on March 29 but wanted to do so with a deal.
Taken together, the comments seem to imply that a no-deal Brexit is no longer an option – a helpful development for the Pound – but nonetheless one that still cannot be ruled out entirely.
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.