Latest news heightens concerns that ‘sticky’ inflation could scupper hopes of early interest rate cuts.
UK inflation rose in December, against all expectations for a continued fall. Headline inflation came in at 4.0%, against forecasts of 3.8% (compared to the actual rate of 3.9% the previous month). Core inflation held steady at 5.1% versus forecasts of a fall to 4.9%. In light of recent economic news from the UK and elsewhere, it now seems that hopes for early cuts in rates from global central banks were a tad optimistic.
Tobacco duty increases and alcohol price rises accounted for the majority of the UK inflation surprise to the upside, but on the plus side, food price inflation continues to go in the right direction, albeit still high at 8.0% year-on-year by historical standards. This all translates into murkier forecasting for the Bank of England as to when they can begin to ease rates, and by implication that directly impacts market sentiment, with gilt yields rising across the curve.
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