Sticky services CPI supports March cut debate – MUFG

Finance

Sticky services CPI supports March cut debate – MUFG

MUFGs Head of Research Derek Halpenny notes UK CPI was slightly stronger than expected in January, with core and services inflation surprising on the upside, though overall disinflation momentum persists. He argues the Bank of England remains on course for a 25 bps cut in March, while the latest CPI print may lend some support to the Pound after its recent sell-off.

UK data keep BoE cut in focus

“But the disinflation momentum is still evident in todays data and after the weak jobs data yesterday we would still argue that the BoE is on course for cutting by 25bps in March.”

“Still, with this the last CPI print before that meeting, the YoY services CPI at 4.4% is well above the BoEs projection of 4.1% providing continued evidence of sticky underlying inflation.”

“Pricing for a 25bps cut at that meeting could well slip a little after this CPI data which should provide some support for the pound after the sell-off yesterday.”

“We are though maintaining our view that there is enough data available to justify a cut in March.”