UK CPI data increased year-on-year by 4.0% in December, up from the 3.9% recorded in November, as announced by the Office for National Statistics (ONS) on Wednesday. The previous market consensus projected growth of 3.8%.

Core CPI growth (which excludes volatile food and energy prices) reached 5.1% YoY in December, maintaining the same level as November, although it was below the estimated 4.9%.

Additionally, the UK Consumer Price Index recorded a month-on-month increase of 0.4% in December, surpassing the expected growth of 0.2% and ending the negative trend observed in November, which recorded -0.2%.

The GBP/USD currency pair responded positively to the rise in UK CPI inflation, strengthening and reaching 1.2650. The pair is currently trading at 1.2636, indicating relatively flat movement today.

What to Expect from the Next UK Inflation Report?

The UK Consumer Price Index (CPI) is projected to grow 3.8% YoY in December, showing a slight slowdown from 3.9% in November, marking the lowest figure since September 2021, yet still nearly double the BoE's target of 2.0%.

Core CPI inflation is expected to decrease to 4.9% YoY in December, down from 5.1% in November, while UK monthly CPI is expected to rise by 0.2% after falling by 0.2% in November.

Analysis from TD Securities (TDS) notes the potential weakening of core inflation data. They project pressure on the headline figures, with the weak recreation and travel sectors potentially causing a significant drop in service sector inflation to 6.0% YoY—0.9 percentage points below the MPC's expectations. This supports the potential for dovish policy from the MPC in February, although interest rate cuts may not occur until May.

BoE Governor Andrew Bailey expects the decline in mortgage costs to continue but refrained from commenting on monetary policy. After maintaining interest rates in December, Bailey emphasized the difficulty of reducing inflation to 2%.

Nonetheless, the decrease in inflation in November raised hopes for faster-than-expected interest rate cuts. The ONS identified falling gasoline prices as the main driver, along with decreasing food and household goods inflation.

In the quarter up to November, wage growth in the UK slowed, indicating signs of reduced inflationary pressure and concerns for the BoE. Average earnings excluding bonuses rose 6.6% YoY in November, slowing from 7.2% in October.

Although UK GDP rose by 0.3% in November, recession risks remain due to high energy bills and borrowing costs for households.

Against this backdrop, upcoming UK inflation data could project the timing and pace of central bank interest rate cuts this year, potentially impacting the value of the Pound Sterling.

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Disclaimer!

The analysis "UK CPI Data Surges to 4.0%, Exceeding Predictions at Year-End" is based on fundamental and technical perspectives from reliable sources and is not intended as advice or solicitation. Always remember that this content aims to enrich the reader's information. Always conduct your own research regarding other forex information as a reference for your trading.

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