- Samuel Tombs of Capital Economics
Surprisingly how fast inflation in the U.K. moved back into a worrying territory, falling below the healthy 2% level. The Office For National Statistics said the rate of consumer prices decelerated to 1.7% last month, hitting the lowest since November 2009 and slowing from 1.9% a month earlier. The main downside pressure came from transport and lower prices of petrol. Consumer prices have been turning lower since September 2011, when they hit a pre-recession peak of 5.2%. A less volatile core measure that strips out prices of energy, tobacco and alcohol, surprised markets to the upside posting a 1.7% gain from January's 1.6%. Analysts, predicted the indicator will remain unchanged. While some can call the latest trend in CPI an alarming sign, these developments are completely in line will central bank's forecasts, which predicted inflation will remain tamed in the foreseeable future. The BoE expects the CPI to hover around 2% in the second quarter of 2014 and hit 1.8% in early 2015.
Markets, however, welcomed the latest data, pushing the Sterling higher against other major currencies. While weak inflation supports the case for the central bank to keep borrowing costs at the current level for the observed period of time, the Pacific Investment Management Co. claimed that markets have already priced in the effect of the looming interest rate hike from the Bank of England.
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