UK inflation falls to 3.2% YoY in March

United Kingdom CPI rose 3.2% YoY in March vs. 3.1% expected.
British inflation steadied at 0.6% MoM in March.
GBP/USD jumps toward 1.2450 on UK CPI inflation data.

Consumer Price Index (CPI) in the United Kingdom (UK) rose at an annual pace of 3.2% in March, slower than a 3.4% uptick in February, the data released by the Office for National Statistics (ONS) showed Wednesday. The data beat the market expectations of a 3.1% increase in the reported period.

The Core CPI (excluding volatile food and energy items) accelerated by 4.2% YoY in March, compared with February’s rise of 4.5% while beating the expected 4.1% print.

The UK March Services CPI rose 6.0% YoY, down from a 6.1% growth in February.

Meanwhile, the UK Consumer Price Index increased 0.6% MoM in March, at the same pace seen in February.

GBP/USD reaction to the UK CPI inflation data

GBP/USD popped to test 1.2450 in an immediate reaction to UK CPI data, before quickly reversing to near 1.2440, where it now wavers. The pair is trading 0.12% higher on the day.

GBP/USD:15-minutes chart

Pound Sterling price today

The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies today. Pound Sterling was the strongest against the Australian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.12%	-0.01%	0.11%	0.13%	-0.04%	-0.07%	0.07%
EUR	-0.11%		-0.12%	0.00%	0.02%	-0.17%	-0.21%	-0.05%
GBP	0.00%	0.11%		0.11%	0.14%	-0.05%	-0.06%	0.07%
CAD	-0.10%	0.02%	-0.11%		0.04%	-0.15%	-0.19%	-0.04%
AUD	-0.15%	-0.02%	-0.14%	-0.02%		-0.18%	-0.23%	-0.07%
JPY	0.04%	0.15%	0.03%	0.16%	0.15%		-0.06%	0.12%
NZD	0.10%	0.16%	0.07%	0.17%	0.19%	0.04%		0.13%
CHF	-0.06%	0.05%	-0.07%	0.05%	0.07%	-0.11%	-0.14%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

This section below was published at 02:15 GMT as a preview of the UK Consumer Price Index (CPI) data.

The March UK CPI report will be released by the Office for National Statistics on Wednesday.
United Kingdom’s headline and core annual inflation are set to ease in March.
The UK CPI report could hint at the BoE’s interest rate cut, rocking the Pound Sterling.

The highly-anticipated United Kingdom’s (UK) Consumer Price Index (CPI) data will be published by the Office for National Statistics (ONS) at 06:00 GMT on Wednesday.

Pound Sterling could witness a big reaction to the UK CPI inflation report, as the data could prompt the Bank of England (BoE) to signal an interest rate cut earlier than the market expectations.

What to expect from the next UK inflation report?

The headline annual UK Consumer Price Index is set to rise 3.1% in March, slower than a 3.4% increase in February. The reading would remain at its lowest since September 2021 but still higher than the BoE’s 2.0% target.

The core CPI inflation is seen easing to 4.1% YoY in March from 4.5% in February, also reaching the lowest level in more than two years. Meanwhile, the British monthly CPI rose 0.6% in the previous month.

A main factor that could contribute to easing inflation is weaker growth in food prices.

The latest monitor from the British Retail Consortium (BRC) trade body and the market research firm NielsenIQ showed earlier this month that food inflation fell to 3.7% from 5.0%. Meanwhile, the UK shop prices rose at an annual rate of 1.3% in March, down from a rate of 2.5% in February, registering the slowest pace since December 2021.

Helen Dickinson, the chief executive of the BRC, explained the reason behind the fall in food price inflation by saying that “while Easter treats were more expensive than in previous years due to high global cocoa and sugar prices, retailers provided cracking deals on popular chocolates, which led to price falls compared to the previous month.”

“Dairy prices also fell on the month as farm gate prices eased, and retailers worked hard to lower prices for many essentials. In non-food, prices of electricals, clothing and footwear fell as retailers increased promotions to entice consumer spending,” she added.

Furthermore, Average Earnings excluding Bonus, a measure of wage inflation, rose 6.0% 3M YoY in February, slowing from January’s 6.1% growth.

However, economists expect services inflation to remain elevated at 5.8% YoY even though slowing from a 6.1% increase in February. This could hold the Bank of England (BoE) from signaling a policy pivot. Markets are pricing in the first BoE full quarter-point rate reduction by September. Money markets now wager a 49 basis points (bps) of easing in 2024.

The BoE delivered a dovish hold at its March policy meeting after two of the Bank’s most ardent hawks dropped their demands for hikes. BoE Monetary Policy Committee (MPC) members Catherine Mann and Jonathan Haskel joined an 8-1 majority to keep rates at a 16-year high of 5.25%.

Previewing the UK inflation data, analysts at TD Securities (TDS) noted that “headline inflation likely continued to slightly undershoot the MPC's forecast in March, though services should be in line at 5.8%.”

“Weak food and core goods inflation will exert further downside pressure on the print, while the early Easter adds some upside risk to services. Looking ahead, we continue to expect headline to be below target from April until the end of the year,” the TDS analysts said.

When will the UK Consumer Price Index report be released and how could it affect GBP/USD?

The UK docket will feature the CPI data on Wednesday at 06:00 GMT. The Pound Sterling is attempting a tepid recovery against the US Dollar heading into the inflation showdown. At the same time, the US Dollar Index consolidates near five-month highs, above 106.00.

A hotter-than-expected headline and core inflation data could help push back the market expectations of a September BoE rate cut, providing a fresh boost to the Pound Sterling rebound. In such a case, GBP/USD could see a sustained turnaround toward the 1.2600 level. On the other hand, GBP/USD could resume its downtrend toward 1.2375 if the UK CPI data show a notable cooling off in services inflation, suggesting that the BoE may not wait until September to announce a policy pivot.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The GBP/USD pair closed below the static support of 1.2450 on Monday, reinforcing the bearish interests. The 14-day Relative Strength Index (RSI) stays vulnerable below the midline, near 32.0, suggesting that there is more room to the downside for the Pound Sterling.”

Dhwani adds: “A decisive break below the 1.2400 threshold could intensify the selling pressure, pushing GBP/USD toward the 1.2375 demand area. Around that level, the November 16 and 17 lows align. Further south, the 1.2300 round figure could be retested. On the other hand, any corrective upside will challenge the 1.2500 hurdle, above which a meaningful recovery toward the 200-day Simple Moving (SMA) at 1.2579 could be in the offing,” Dhwani adds.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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