UK inflation for December in line with forecast

Traders now firm on a 50bp interest rate hike from the BoE next month..


More good news for Sterling today as another 0.5% has been across the board, after the main data for the week proves fruitful. The readings on inflation data for December were all in line with expectations, however upside pressures from food and non-alcoholic beverages (the highest since 1977) are what analysts are focusing on.

Peak inflation has passed, but overall inflation is stubbornly high and not falling fast enough especially when compared to the US. It's a sticky double-digit number the UK has where wages are having to climb for consumers to keep up with inflation, let alone beat it and energy prices are now being reflected in higher prices charged by businesses. 

It's now very likely the BoE have to do more to bring inflation down faster and that means continuing to hike rates by 50bp. The notion of 'first in, first out' now looks unlikely, which is good news for the £. Following the ECB's aggressive hike path would be beneficial to the Pound, instead of the US who are close to the end of their hike cycle after consistent soft inflation numbers. 

GBP v EUR rates are closing in on a 1-month high, but our view would be to hedge now after seeing a gain of 1.5% this week alone. GBP v USD is up over 2% in a week and is trading at the second best time in the last 5-months..


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