UK inflation at 10.7%, lower than expectations and previous month

GBP

The pound eased back from recent highs after headline CPI inflation rose by 10.7% year-on-year in November says the Office for National Statistics, which was less than the 10.9% expected by markets and lower than October’s 11.1%.

Inflation increased 0.4% over the month, which was below the 0.6% consensus was looking for and represents a sharp decline on October’s 2.0% increase. Core CPI – which gives a better indication of true domestic inflationary pressure as it excludes fuel and food – rose 0.3% over the month, below expectations for a 0.5% rise and October’s 0.7% increase. This takes the annual rate of core CPI to 6.3%, down on expectations (6.5%) and lower than the previous month (6.5%).

Sterling continued to perform well yesterday after the latest unemployment numbers showed a small increase to 3.7% for the three months to October. Offsetting that increase, the number of payrolled employees for November rose by 107k to a new record high of 29.9 million.

Wage growth also saw a healthy increase, pushing up to 6.1% and the highest level outside the pandemic since 2001, increasing the pressure on the Bank of England to push interest rates up by 50 basis points later this week. The increase in payrolled employee numbers appears to suggest that people are returning to the labour market as the rising cost of living alters the economic issues when it comes to paying the bills.

Sterling gains were made larger after US CPI came in softer than expected at 7.1% and its lowest level this year, while core prices fell to 6% (below expectations of 6.1%) pushing the pound up through to a six-month high.

Having seen PPI come in slightly higher than expected last week, yesterday’s small CPI number has put the prospect of a slower rate hiking cycle back onto the agenda for the early part of next year, sending yields sharply lower. US inflation figures in November boost optimism of further drop in consumer prices and open way for the Fed to start easing its hiking cycle. Markets eyes will now be firmly on todays announcement from the federal reserve’s monetary policy decision as markets are expecting a 50 basis point increase breaking the trend off all previous increases which were at 75 basis points.

USD

November US inflation figures are boosting optimism of further drop in consumer prices and are opening ways for the Federal Reserve to start easing its hiking cycle.

The focus for markets will now be firmly on today’s announcement from the Fed on monetary policy – markets are expecting a 50 basis points rate increase breaking the trend of all previous rises which were at 75 basis points.