Market news
Market news
17.10.2024 | Inflation Drives the Pound to Two-Month Lows
A report released last week by the UK Office for National Statistics showed that the country's GDP grew by 0.2% month-on-month in August. Thus, the United Kingdom’s economy returned to growth after two months of stagnation. However, when assessing the year-on-year performance, it becomes clear that economic activity has slowed down in the second half of this year.
On Wednesday, 16 October, further macroeconomic data was published, revealing that inflation in the UK has fallen to its lowest level in over three years. The Consumer Price Index (CPI) remained flat month-on-month, which is below both the previous figure of 0.3% and the market expectations of 0.1%.
Year-on-year, consumer prices rose by 1.7% in September, significantly lower than the previous figure of 2.2% and the forecast of 1.9%. Experts note that this decline was primarily due to a drop in the prices of airfares and petrol.
As a result, inflation has fallen below the Bank of England’s (BoE) 2.0% target for the first time since 2021. This has strengthened market expectations of a key interest rate cut at the regulator’s upcoming meeting. It is now anticipated that borrowing costs will be reduced by another 25 basis points on 7 November, bringing the rate down from 5.0% to 4.75%.
It should be noted that in August, the regulator already cut the rate by 25 basis points, marking its first monetary policy easing since the start of the COVID-19 pandemic in March 2020. At that time, the rate was at 0.1%, where it remained until November 2021, after which the Bank of England began raising it to combat inflation. In August of last year, the interest rate reached a peak of 5.25%. This tightening of monetary policy had a positive effect, with inflation falling from 11.1% in November 2022 to the current 1.7%. Such success enables the BoE to continue down the path of monetary easing, shifting the focus to supporting economic growth.
Against this backdrop, the British currency fell to two-month lows, with the GBP/USD pair hitting a local bottom at 1.2980 on 16 October.
On Wednesday, 16 October, further macroeconomic data was published, revealing that inflation in the UK has fallen to its lowest level in over three years. The Consumer Price Index (CPI) remained flat month-on-month, which is below both the previous figure of 0.3% and the market expectations of 0.1%.
Year-on-year, consumer prices rose by 1.7% in September, significantly lower than the previous figure of 2.2% and the forecast of 1.9%. Experts note that this decline was primarily due to a drop in the prices of airfares and petrol.
As a result, inflation has fallen below the Bank of England’s (BoE) 2.0% target for the first time since 2021. This has strengthened market expectations of a key interest rate cut at the regulator’s upcoming meeting. It is now anticipated that borrowing costs will be reduced by another 25 basis points on 7 November, bringing the rate down from 5.0% to 4.75%.
It should be noted that in August, the regulator already cut the rate by 25 basis points, marking its first monetary policy easing since the start of the COVID-19 pandemic in March 2020. At that time, the rate was at 0.1%, where it remained until November 2021, after which the Bank of England began raising it to combat inflation. In August of last year, the interest rate reached a peak of 5.25%. This tightening of monetary policy had a positive effect, with inflation falling from 11.1% in November 2022 to the current 1.7%. Such success enables the BoE to continue down the path of monetary easing, shifting the focus to supporting economic growth.
Against this backdrop, the British currency fell to two-month lows, with the GBP/USD pair hitting a local bottom at 1.2980 on 16 October.
