- Annual UK CPI rose 2.5% in December versus 2.7% expected.
- UK inflation rate rose to 0.3% m/m in December versus expectations of 0.4%.
- GBP/USD fell below 1.2200 after UK CPI inflation data.
Data released by the Office for National Statistics (ONS) on Wednesday showed that the United Kingdom (UK) consumer price index rose 2.5% year-on-year in December after a 2.6% increase in November.
Market expectations indicated a growth of 2.7% during the aforementioned period. The reading remained above the Bank of England’s target of 2%.
The annual core CPI (excluding food and volatile energy) accelerated to 3.2% in the same period, compared to a rise of 3.5% in November, while missing market expectations of 3.4%.
Services inflation fell sharply to 4.4% year-on-year in December compared to 5% in November.
Meanwhile, monthly UK CPI inflation rose to 0.3% in December from 0.1% in November. Markets estimated a reading of 0.4%.
GBP/USD reaction to UK CPI inflation data
UK CPI data is having a negative impact on the pound, sending GBP/USD down 0.24% on the day near 1.2185, as of writing.
The price of the British pound today
The table below shows the percentage change of the British Pound (GBP) against the major currencies listed today. The British pound was the weakest against the Japanese yen.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.04% | 0.05% | -0.57% | -0.07% | -0.15% | -0.17% | -0.08% | |
| euro | -0.04% | 0.01% | -0.61% | -0.12% | -0.19% | -0.21% | -0.12% | |
| GBP | -0.05% | -0.01% | -0.63% | -0.11% | -0.20% | -0.23% | -0.11% | |
| JPY | 0.57% | 0.61% | 0.63% | 0.49% | 0.41% | 0.37% | 0.49% | |
| Canadian | 0.07% | 0.12% | 0.11% | -0.49% | -0.09% | -0.10% | -0.00% | |
| Australian dollar | 0.15% | 0.19% | 0.20% | -0.41% | 0.09% | -0.02% | 0.09% | |
| New Zealand dollar | 0.17% | 0.21% | 0.23% | -0.37% | 0.10% | 0.02% | 0.10% | |
| Swiss franc | 0.08% | 0.12% | 0.11% | -0.49% | 0.00% | -0.09% | -0.10% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the British pound from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
This section below was published at 03:15 GMT as a preview of UK CPI inflation data.
- The UK Office for National Statistics will release CPI data for December on Wednesday.
- Annual UK CPI inflation is expected to rise in December, with the core figure slowing slightly.
- The UK CPI report is likely to shake the pound amid the Bank of England’s dovish approach.
The UK Office for National Statistics (ONS) will release high-impact Consumer Price Index (CPI) data for December on Wednesday at 07:00 GMT.
The UK CPI inflation report could significantly impact the direction of interest rates at the Bank of England (BoE) and the British pound amid ongoing turmoil in the global bond market.
What can we expect from the next UK inflation report?
The UK CPI is expected to rise 2.7% year-on-year in December, following 2.6% growth in November, moving away from the Bank of England’s 2.0% target.
Core CPI inflation, which excludes energy, food, alcohol and tobacco, is likely to fall to 3.4% year-on-year in December, compared to 3.5% recorded in November.
According to a Bloomberg survey of economists, official data is expected to show that services inflation fell to 4.8% in December after remaining at 5% the previous month.
The Bank of England expects the annual headline CPI to reach 2.5% and the CPI for services to reach 4.7% for December.
Meanwhile, the UK monthly CPI is expected to rise by 0.4% in the same period, versus the previous growth of 0.1%.
Previewing the UK inflation data, TD Securities analysts noted: “We are looking at a headline of 2.7% but core and more important services are likely to see a slowdown, especially services, which we expect to decline from 5.0% y/y in November. With However, there is still a great deal of uncertainty regarding airfare prices, which are likely to be very weak during the month due to the survey data.
How will the UK CPI report affect the GBP/USD pair?
Bank of England policymakers wrapped up 2024 with a decision to leave its benchmark interest rate unchanged at 4.75% at its December meeting after UK inflation rose to an eight-month high.
With a bias toward caution, the composition of the vote was more divided than expected. Three members of the Monetary Policy Committee voted in favor of lowering interest rates, while six favored stabilizing them. Amid the weak economic outlook, Bank of England Governor Andrew Bailey said: “We believe that a gradual approach to cutting interest rates in the future remains correct. But with increasing uncertainty in the economy, we cannot commit to when or how much we will cut interest rates next year.”
The continuing decline in the UK bond market points to the bleak economic outlook and rising inflationary concerns under US President-elect Donald Trump 2.0.
Given these factors, risks are high ahead of the UK CPI data for December, as it could change the market’s pricing of the Bank of England’s path forward on interest rates.
Hotter-than-expected headline and core inflation data are likely to confirm the Bank of England’s gradual easing stance, providing much-needed relief to the pound. In this case, GBP/USD could see a good recovery from the lowest level in a year. Conversely, weaker than expected inflation readings could call for significant interest rate cuts from the Bank of England amid a fragile economic situation, sending GBP/USD crashing towards sub-1.2000 levels.
Dhwani Mehta, Senior Asia Analyst at FXStreet, provides a brief technical outlook on the pair and explains: “GBP/USD is heavily oversold on the daily time frame ahead of the UK CPI data, with the RSI On a 14-day basis, the Relative Strength Index (RSI) is holding below 30. Therefore, the pair appears set for a short recovery in the near term.”
Dhawani adds: “The pair could start a meaningful recovery on acceptance above the 1.2300 round level, above which the January 9 high at 1.2367 will be tested. The next upside target lies at the 21-day SMA at 1.2462. On the flip side, support is emerging The spot is at a 14-month low at 1.2100, below which the 1.2050 psychological barrier will come into play.”
