UK core inflation likely not enough to see the BoE cut rates again next month
Recent data suggest that the BoE could pause in cutting rates when it meets in February.
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The Bank of England meets on 5 February and recent data suggest that it could hold the bank rate steady at 3¾%, where policy is modestly restrictive given the market puts the median neutral policy rate at 3¼%.
The quality of the UK labour market statistics remains poor, but the market seems little changed over the past couple of months with the unemployment rate steady at a still-high 5.1%.
Core inflation has improved with the annual rate edging down to 3.2% in December.
This is still well above the Bank of England's 2% target and the improvement is flattered by what seems an oddly small monthly increase of 0.1% in October, with the core CPI rising by another 0.2% in December on our seasonal adjustment (the low October result drives the sharp improvement in estimated trend inflation over the past few months).
The latest threat of higher US tariffs could change the trajectory for goods prices if the UK government is forced to take retaliatory action.
In the meantime, core good prices are slowly edging higher, up 0.1% in December after a flat November, such that annual core goods inflation is running at 1% (this compares with ½% prior to COVID).
Services inflation has been steady, with the services CPI posting another 0.3% increase in December, such that annual services inflation has picked up to 4.6%. Still-high services inflation is a problem common to most advanced economies.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
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