Decelerating UK inflation is not changing the view of the Bank rate rise in May

Inflation and wages disappointed rising less than expected, but do not alter the view of the Bank of England hiking rates on May 10, 2018.
Looking at the combination of lower inflation and tight labor market, the Bank of England will prefer precautious rate hike to tame labor market tightness.
The interest rate outlook is expected to drive GBP/USD higher long-term.

Mario Blascak, PhD Independent Analyst

The UK Consumer Price Index (CPI) decelerated to 2.5% over the year in March with core inflation that is stripping the food and energy items out of the consumer basket rising 2.3% over the year in March, the Office for National Statistics said on Wednesday. Both figures coming out below market expectations.

Sterling fell to about 70 pips in the knee-jerk reaction to the UK inflation data as decelerating inflation is putting the pressure off the Bank of England to raise the Bank rate as early as in May this year.

I argue that decelerating inflation that is still above 2% inflation target of the Bank of England does not alter the expectations of May rate hike much, as nominal wages are rising by 2.8% y/y turning the real, inflation-adjusted wages back to positive territory for the first time since January last year. I believe that the Bank of England is looking rather at the long-term effects of the tight labor market that will eventually press on wages to rise even as the inflation rate will decelerate further as the post-Brexit effect of Sterling depreciation wanes.

The Bank of England Monetary Policy Committee has already turned partially hawkish in March with two members Ian McCafferty and Michael Saunders voting for a rate hike and McCafferty recently claiming that the Bank should not delay hiking interest rates again due to a possibility of faster pay rises.

Looking at the long-term perspectives recent knock-out of GBP/USD off the 22-month high is just a technical correction within a long-term trend of Sterling’s appreciation.

GBP/USD daily chart

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

EUR/USD gains traction to near 1.1800 as tariff uncertainty weighs on US Dollar

The EUR/USD pair holds positive ground around 1.1795 during the early Asian session on Tuesday. The US Dollar weakens against the Euro amid US tariff uncertainty. The release of the US January Producer Price Index report will be in the spotlight later on Friday.

GBP/USD treads water near 1.3500 as BoE-Fed divergence debate stalls

GBP/USD spent Monday spinning in place as market participants await a fresh catalyst to break the pair out of its recent range. The BoE's February hold came with a surprisingly dovish 5-4 split, and UK Consumer Price Index data last week showed inflation easing to 3.0%, reinforcing the case for earlier rate cuts, with most economists now looking to April or March for the next move.

Gold down but not out as key $5,140 support holds

Gold consolidates the advance to monthly top of $5,250 in Tuesday’s Asian trades. The US Dollar finds demand as liquidity returns and risk sentiment recovers, despite US tariffs uncertainty. Gold defends 61.8% Fibo resistance at $5,142 amid the pullback, daily RSI remains bullish.

Top Crypto Losers: BCH, HYPE, PUMP extend losses as Bitcoin drops below $64,000

Altcoins, including Bitcoin Cash, Hyperliquid, and Pump.fun, are leading losses over the last 24 hours as Bitcoin falls below $64,000 on Tuesday. The technical outlook for BCH, HYPE, and PUMP flags downside risk amid broader market selling.

Supreme Court nixes tariffs, Trump teases 15% global tariff

On February 20th, the Supreme Court ruled that Trump’s global tariffs under IEEPA authority were unconstitutional, effectively nullifying the framework. However, the relief was short-lived. Within hours, Trump floated a 15% blanket tariff under an alternative legal authority.

XRP recovers slightly as bearish sentiment dominates crypto market

Ripple is rising above $1.40 at the time of writing on Monday amid fresh tariff-triggered headwinds in the broader cryptocurrency market. The sell-off to $1.33, the token’s intraday low, can be attributed to macroeconomic uncertainty, geopolitical tensions and risk-averse sentiment among other factors.