UK Inflation Hits 2 Year Low; Cable Steady

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UK inflation data printed markedly lower in June with CPI declining -0.4% on a month over month basis while rising only 2.4% versus 2.8% forecast on an annual basis. Core CPI declined to 2.1% from 2.2% month prior while RPI printed below the key 3.0% at 2.8% for the first time in more than 2 years.

Overall this was the tamest set of of UK inflation numbers since the end of 2009 suggesting that inflationary spiral that has plagued the country even as its economy continued to contract may finally be broken. The decline in price pressures was lead by lower clothing, footwear and transportation costs as summer discounts helped ease inflationary levels.

The data should prove to be welcome news to UK monetary officials providing them with greater leeway to stimulate growth via more accommodative policy as inflation concerns continue to recede into the background. BoE Governor Mervyn King is set to speak later today in front of the UK Parliament where he may reveal further details about the BoE lending scheme to increase credit to small and medium businesses. Mr. King is also likely to face sharp questioning over the LIBOR scandal as he faces the lawmakers.

Cable initially sold off mildly on cooler than expected inflation data but quickly recovered its footing trading back towards the 1.5650 level. The lower inflation data should signal further QE measures from UK central bank which is seen as positive for high beta currencies such as sterling.

Boris Schlossberg
Managing Director

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