Headline & Core Inflation Rose
The latest UK economic data released today showed that Consumer prices rose in October. Headline CPI was seen increasing by 0.7% over the month, marking a firm increase from the prior month’s 0.5% reading and beating expectations of another 0.5% result.
Looking at the breakdown of the data released by the Office for National Statistics, the largest upside contributions came from clothing, food and furniture which contributed 0.16% in total. This increase was partially offset by negative contributions from the recreation and culture, and transport segments which contributed -0.06% and -0.04% respectively. Core inflation, which strips out energy and food prices, was also seen rising to 1.5% from the prior and expected 1.3% reading.
Notable Elements of Report
Notably, in its October inflation report, the ONS explains that clothing and footwear prices have varied from their typical seasonal pricing patterns this year, as a result of the pandemic. Typically, the ONS says, clothing and footwear prices fall over June and July, with items placed on sale in preparation for a stock changeover into the autumn and then rise again ahead of sales at the end of the year. However, this year, prices saw heavy discounting in March and April, as a result of the lockdown, prices then saw a small increase between July and August as restrictions lifted and then rose much more in October compared with the same month a year earlier. Of note also, the ONS reported that inflation contribution from food and non-alcoholic beverages was negative for the first time since January 2017.
Still Well Below BOE Target
Despite the increase in inflation over the month, the headline rate remains well below the BOE’s 2% target and, at this stage, will be of more concern to consumers who will feel the squeeze of higher food prices. Headlines regarding COVID vaccine successes have helped improve the outlook recently. However, as of the last BOE meeting, the bank currently projects inflation to remain subdued until Q2 2021 when the temporary sales-tax cut for the hospitality sector ends. From here, the BOE forecasts inflation to hit 2% by the end of next year.
GBPUSD is pushing higher again now with price trading back above the 1.3191 level. While this level holds as support, the near term bias remains bullish with the 1.3516 level the next upside hurdle for bulls along with the retest of the underside of the broken bullish channel.
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