"Today's figures should give reassurance to markets that the period of inflation being way above target is behind us. It makes it slightly easier for the MPC to communicate its policy of keeping rates low. It's not impossible that the 2 percent could be hit over the next three-to-four months."
- Philip Shaw, chief economist at Investec Securitie
The Sterling has been losing ground versus the single currency since the beginning of December, and the pair is approaching a strong resistance at 0.85, which could be the perfect entry point for short positions. The pair inched higher on Tuesday as well, as official data showed Britain's inflation eased to its lowest level in four years, giving the policymakers plenty of breathing space to keep accommodative monetary policy for as long as it is needed. The ONS said consumer prices advanced 2.1% from a year earlier in November, following a 2.2% gain in the previous month, moving closer to the central bank's 2% target. The main downside pressure came from a fall in the food prices, particularly fruit and vegetables, while costs of gas and electricity ticked lower as well. In contrast, the upward contributions came from the transport sector.
Consumer price have fallen from an annual rate of 5.2% in September 2011 to almost the official target. According to the BoE's projections, the annual inflation is still likely to climb higher in the short term, however, still staying close, albeit slightly above, their target through most of the next year. Regarding the 2015 year, the CPI is expected to dip below the 2%. The latest figures are supporting the case the BoE can easily start raising interest rates, and easing concerns record-low interest rates will risk a surge in prices.
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