UK February CPI +2.8% vs +3.0% y/y expected

• Prior +3.0%
• Core CPI +3.5% vs +3.6% y/y expected
• Prior +3.7%

The readings are a surprise to the downside even as services inflation held unchanged at 5.0% in core terms on the month. Instead, goods inflation was the one leading the drop with a fall from 1.0% in January to 0.8% in February. The former will not be too welcome by the BOE as it reaffirms stickier inflation as a whole still.

The pound is a touch softer on the report with GBP/USD falling to 1.2920 from around 1.2940 earlier. But given the breakdown, I wouldn’t see this as being too comforting for the BOE (that should limit sterling downside as such). With services inflation holding up and core prices still keeping between 3% to 4%, it’s not anything to rush the next rate cut in my view.

The odds of a May rate cut were at ~45% coming into the report. I reckon that might increase slightly but it shouldn’t overwhelmingly favour a rate cut. All else being equal, it should still be a coin flip when considering the details of the report here.

This article was written by Justin Low at www.forexlive.com.