Covid plan B restrictions end in England

GBP

The pound was further supported on Wednesday by strong inflation data which came above market expectation. UK CPI inflation for December came in at 5.4% year on year, beating market expectations of 5.2% and surpassing November’s number of 5.1%. Core CPI inflation read at 4.2%, breezing past the market’s expectation for 3.9%. Above expectation numbers will pile the pressure on the Bank of England to act given inflation is well above the 2% target. This is the biggest hint that the Bank of England could raise rates next month.

The current inflationary pressure is now above the Bank of England’s target than at any point since the UK first adopted an inflation target in October 1992. Markets now expect the Bank Rate to be as high as 1.25% by the end of 2022.

Prime Minister Boris Johnson told parliament midweek that Plan B restrictions would expire in England on January 26 in light of a consistent fall in UK cases and signs hospital admissions were starting to decline. With restrictions set to end, this will open the door to an economic rebound in February and push the case further for a rate hike. Expectations for an economic growth rebound combined with strong labour market data will help to push the yields paid on UK government bonds higher.

Key announcements

13:30 – USD – Unemployment claims – Forecast at 227k from previous 230k
13:30 – USD – Philly Fed manufacturing index – Forecast at 18.9 from previous 15.5