Despite UK inflation figures falling below expectations, GBP displayed remarkable resilience, potentially steering the Bank of England (BoE) towards interest rate cuts in the summer. Initially, the GBP/EUR exchange rate dipped to 1.1684 in response to news of UK CPI inflation coming in at 3.4% in the twelve months leading to February 2024, a decrease from January's 4.0% and below the anticipated 3.6% by consensus. This marks the softest inflation reading since September 2021, registering at 3.1%.
Core CPI, excluding energy, food, alcohol, and tobacco, saw a 4.5% increase in the twelve months leading to February 2024, down from January's 5.1% and below the expected 4.6%. Services inflation, a significant metric for the BoE, eased from 6.5% to 6.1%. Despite the GBP's initial decline, it rebounded swiftly, contrary to the usual reaction to such undershooting inflation numbers.
The Office for National Statistics (ONS) reports that the most substantial downward contributions to the monthly change in inflation stemmed from food, restaurants, and cafes, while housing, household services, and motor fuels made the most significant upward contributions. These statistics precede the BoE's Thursday policy announcement, where interest rates are projected to remain unchanged at 5.25%, though guidance remains uncertain.
Today, the attention now shifts to the US Federal Reserve. The Fed is anticipated to adopt a more stringent stance on policy due to higher-than-expected inflation and a robust job market, maintaining pressure on the US central bank to uphold elevated interest rates.
