UK inflation: Push back towards zero levels on the cards – ING

By FXStreet FXStreet (Delhi) – James Knightley, Senior Economist at ING, sees the risk that UK’s headline inflation drops back to zero today.

Key Quotes

“With wage growth staying subdued and Brexit concerns adding downside risks to activity, Mark Carney is likely to signal little chance of a BoE rate hike before the EU referendum.

The November YoY% reading for headline consumer price inflation came in above zero for the first time in four months, but we suspect that plunging fuel costs mean that the annual rate (released today) has slipped back to zero for the December period.

If we are right in our CPI prediction and if tomorrow’s UK labour report fails to show an acceleration in wage growth (we look for the 3M average for headline pay to slip to 2.1% from 2.4%) then market expectations for Bank of England policy tightening are going to be further pushed back while sterling will come under increasing downward pressure. We see these trends being intensified by Brexit uncertainty.

It looks increasingly likely that the referendum on whether the UK is to remain a member of the European Union will be held in June or July, which will presumably make businesses and households more cautious …read more

Source:: FX Street