Mario Blascak, PhD
Independent Analyst
- The GBP/USD slipped lower on Wednesday ahead of the European Council meeting on Brexit after the UK headline inflation missed the estimated decelerating to 2.4% y/y in September.
- The core UK inflation decelerated to 1.9% y/y in September.
- The largest monthly downward contribution came from food and non-alcoholic beverages where prices fell between August and September 2018.
The GBP/USD is trading on the downside at around 1.3130 after the UK inflation data failed to meet the market expectations with headline inflation decelerating to 2.8% y/y in September while core inflation decelerated to 1.9% y/y. The Brexit summit scheduled for the Wednesday evening headlines as the leaders of the European Union will dine with the UK Prime Minister Theresa May over the outcome of ongoing intensive negotiations.
While decelerating inflation supports the pickup in real, inflation-adjusted wages, in terms of monetary policy slowing inflation buys the time for the Bank of England in tightening the monetary policy.
Over the last 12 months, prices for clothing and footwear fell by 0.4% y/y while prices of financial services fell by 6.2% on the year. The largest downward contribution to the change in the came from food and non-alcoholic beverages, where prices fell by 0.1% between August and September 2018 compared with a rise of 0.8% between the same two months a year ago. The base effect saw food prices having a negative growth effect in 2018.
The largest upward contributor to the rate continues to come from transport, with prices rising by 5.5% in the year to September 2018. Prices of electricity rose 9.3% over the year in September.
Contributions to UK inflation y/y
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