Markets.com Logo
euEnglish
LoginSign Up

British pound extends rise on sticky December UK inflation

Jan 18, 2024
5 min read
Table of Contents
  • 1. UK CPI rises to 4% in December, hawkish repricing of interest rates supports sterling 
  • 2. Markets price out UK interest rate cuts in May following sticky CPI report 
  • 3. "In the U.S. and the euro zone you can see that inflation is coming down, but it's certainly less visible in Britain. The bottom line is that it's a difficult spot for the Bank of England and they will have to wait a little longer for data before seeing whether they can cut in June as the market expects”.
  • 4. GBP forecast: ING says 1.26-1.28 looks like a “likely near-term" for GBP/USD 

One Pound

 

UK CPI rises to 4% in December, hawkish repricing of interest rates supports sterling 

The British pound saw a slight uptick on Thursday, building on gains from the previous day, as the annual consumer price inflation rate unexpectedly rose last month. The Consumer Price Index (CPI) increased to 4.0% year-on-year in December, up from November's more-than-two-year low of 3.9%. 

The unexpected rise led to a boost in sterling and higher bond yields, as markets adjusted their expectations, anticipating that the Bank of England (BoE) might maintain higher interest rates for an extended period. 

Having raised rates 14 times from the end of 2021 to August last year, the BoE had reached a 15-year high of 5.25%, responding to inflation reaching a more than four-decade high of 11.1% in late 2022. 

Core inflation, excluding volatile components such as food and energy, remained at 5.1% in December – contrary to expectations of a fall to 4.9%. Services inflation increased to 6.4% in December from 6.3% in November. 

In a Wednesday morning note cited by Reuters, analysts at Japanese investment bank MUFG wrote: 

"The stronger than expected reading for both core and services inflation in December .. are disappointing and will discourage the BoE from beginning to cut rates sooner. The UK rate market is not fully pricing in the first 25bps rate cut from the BoE until June. The hawkish repricing of the UK rate curve has contributed to the pound strengthening modestly this morning [on January 17]”. 

Kyle Chapman, FX markets analyst at Ballinger & Co, added: 

"Sterling has fought back on the basis that December's CPI print proved to be stickier than expected”. 

At 1200 GMT, the pound was marginally higher against the dollar at $1.2687, extending the 0.3% gain from Wednesday that halted a three-day decline against the greenback.  

The euro to pound rate held around 85.82 pence, with the euro trading slightly stronger than sterling at the time of writing. The British pound gained 0.3% on the common currency the day before. 

 

 

Markets price out UK interest rate cuts in May following sticky CPI report 

Markets swiftly adjusted their expectations after the inflation report, pricing out the possibility of interest rate cuts in the UK. Interest rate futures indicated less than a 50% chance that the BoE would loosen its policy at the May 9 meeting, compared to an approximately 80% chance late on Tuesday. 

In an overview of the inflation report on Wednesday, Markets.com Chief Market Analyst Neil Wilson said the UK central bank would now be “extra cautious” in timing its rate cuts: 

“[The] Bank of England [now] faces inflation ticking up…the dreaded wage price spiral is here. CPI rose to 4.0% Or is it just the Red Sea mess? Odds of a May cut have fallen from around 84% yesterday to 58% this morning after the print. This is bound to make the BoE extra cautious over timing its rate cuts. It could delay the first cut and slow down the pace of cuts this year – but it’s only one data print. Only one but nevertheless one that speaks to the non-linear disinflation we have anticipated”. 

While several major central banks are anticipated to cut interest rates this year, the Federal Reserve is viewed as more likely than not to reduce borrowing costs in March, and the European Central Bank 9ECB) is expected to make a move in April. 

Niels Christensen, chief analyst at Nordea, reviewed market sentiment in a comment to Reuters: 

"In the U.S. and the euro zone you can see that inflation is coming down, but it's certainly less visible in Britain. The bottom line is that it's a difficult spot for the Bank of England and they will have to wait a little longer for data before seeing whether they can cut in June as the market expects”.

GBP forecast: ING says 1.26-1.28 looks like a “likely near-term" for GBP/USD 

In a British pound forecast issued on Thursday, Chris Turner, Global Head of Markets at Dutch bank ING, wrote: 

“Investors took about 20bp out of the 2024 Bank of England easing cycle yesterday. That move supported sterling across the board. [...] It looks like we will probably have to cut our EUR/GBP forecasts soon. Our current forecasts of a move up to 0.88 later this quarter and 0.90 later this year look too aggressive. 

The inflation data also helped GBP/USD hold support at 1.2600 yesterday and 1.26-1.28 looks a likely near-term range until the broader dollar trend resolves itself”. 

At the time of writing on January 18, the GBP to USD exchange rate held at $1.2685, while the EUR to GBP rate was mostly flat at 0.8585. The pound to dollar rate has risen by close to 2.5% over the past year. 

The U.S. dollar index (DXY) – a measure of the greenback’s strength against six major currencies – traded 0.15% lower at 103.30.  

When considering foreign currency (forex) and indices for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. 

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. 


Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.

Georgy Istigechev
Written by
Georgy Istigechev
SHARE

Markets

  • Palladium - Cash

    chartpng

    --

    4.46%
  • EUR/USD

    chartpng

    --

    -0.12%
  • Cotton

    chartpng

    --

    -0.50%
  • AUD/USD

    chartpng

    --

    -0.25%
  • Santander

    chartpng

    --

    -1.87%
  • Apple.svg

    Apple

    chartpng

    --

    -0.52%
  • easyJet

    chartpng

    --

    -1.03%
  • VIXX

    chartpng

    --

    3.06%
  • Silver

    chartpng

    --

    3.53%
Tags DirectoryView all
Table of Contents
  • 1. UK CPI rises to 4% in December, hawkish repricing of interest rates supports sterling 
  • 2. Markets price out UK interest rate cuts in May following sticky CPI report 
  • 3. "In the U.S. and the euro zone you can see that inflation is coming down, but it's certainly less visible in Britain. The bottom line is that it's a difficult spot for the Bank of England and they will have to wait a little longer for data before seeing whether they can cut in June as the market expects”.
  • 4. GBP forecast: ING says 1.26-1.28 looks like a “likely near-term" for GBP/USD 

Related Articles

EU-US Trade Talks: Progress, Challenges, and Future Prospects

The EU and US are seeking a preliminary trade agreement to avoid rising tariffs. This analysis reviews the latest developments and potential challenges.

Ava Grace|about 24 hours ago

Elon Musk, Tesla Stock, and Political Ambitions: A Rocky Road Ahead?

Tesla's stock faltered following Musk's announcement of forming a new political party, raising investor concerns about his focus and intensifying competition.

Emma Rose|about 24 hours ago

Iranian President Claims Israel Attempted Assassination Amidst Nuclear Program Tensions

The Iranian President accuses Israel of attempting to assassinate him during the recent conflict and suggests a potential resumption of nuclear talks with the US while expressing doubts about trusting Washington.

Noah Lee|about 24 hours ago
Markets.com Logo
google playapp storeweb tradertradingView

Contact Us

support@markets.com+12845680155

Markets

  • Forex
  • Shares
  • Commodities
  • Indices
  • Crypto
  • ETFs
  • Bonds

Trading

  • Trading Tools
  • Platform
  • Web Platform
  • App
  • TradingView
  • MT4
  • MT5
  • CFD Trading
  • CFD Asset List
  • Trading Info
  • Trading Conditions
  • Trading Hours
  • Trading Calculators
  • Economic Calendar

Learn

  • News
  • Trading Basics
  • Glossary
  • Webinars
  • Traders' Clinic
  • Education Centre

About

  • Why markets.com
  • Global Offering
  • Our Group
  • Careers
  • FAQs
  • Legal Pack
  • Safety Online
  • Complaints
  • Contact Support
  • Help Centre
  • Sitemap
  • Cookie Disclosure
  • Regulation
  • Awards and Media

Promo

  • Gold Festival
  • Crypto Trading
  • marketsClub
  • Welcome Bonus
  • Loyal Bonus
  • Referral Bonus

Partnership

  • Affiliation
  • IB

Follow us on

  • Facebook
  • Instagram
  • Twitter
  • Youtube
  • Linkedin
  • Threads
  • Tiktok

Listed on

  • 2023 Best Trading Platform Middle East - International Business Magazine
  • 2023 Best Trading Conditions Broker - Forexing.com
  • 2023 Most Trusted Forex Broker - Forexing.com
  • 2023 Most Transparent Broker - AllForexBonus.com
  • 2024 Best Broker for Beginners, United Kingdom - Global Brands Magazine
  • 2024 Best MT4 & MT5 Trading Platform Europe - Brands Review Magazine
  • 2024 Top Research and Education Resources Asia - Global Business and Finance Magazine
  • 2024 Leading CFD Broker Africa - Brands Review Magazine
  • 2024 Best Broker For Beginners LATAM - Global Business and Finance Magazine
  • 2024 Best Mobile Trading App MENA - Brands Review Magazine
  • 2024 Best Outstanding Value Brokerage MENA - Global Business and Finance Magazine
  • 2024 Best Broker for Customer Service MENA - Global Business and Finance Magazine
LegalLegal PackCookie DisclosureSafety Online

Payment
Methods

mastercardvisanetellerskrillwire transferzotapay
The markets.com/za/ site is operated by Markets South Africa (Pty) Ltd which is a regulated by the FSCA under license no. 46860 and licensed to operate as an Over The Counter Derivatives Provider (ODP) in terms of the Financial Markets Act no.19 of 2012. Markets South Africa (Pty) Ltd is located at BOUNDARY PLACE 18 RIVONIA ROAD, ILLOVO SANDTON, JOHANNESBURG, GAUTENG, 2196, South Africa. 

High Risk Investment Warning: Trading Foreign Exchange (Forex) and Contracts For Difference (CFDs) is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Please read the full  Risk Disclosure Statement which gives you a more detailed explanation of the risks involved.

For privacy and data protection related complaints please contact us at privacy@markets.com. Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data.

Markets.com operates through the following subsidiaries:

Safecap Investments Limited, which is regulated by the Cyprus Securities and Exchange Commission (“CySEC”) under license no. 092/08. Safecap is incorporated in the Republic of Cyprus under company number ΗΕ186196.

Finalto International Limited is registered  in the Saint Vincent and The Grenadines (“SVG”) under the revised Laws of Saint Vincent and The Grenadines 2009, with registration number  27030 BC 2023.

Close
Close

set cookie

set cookie

We use cookies to do things like offer live chat support and show you content we think you’ll be interested in. If you’re happy with the use of cookies by markets.com, click accept.