Sterling Retreats as British Inflation Cools More Than Expected

LONDON: According to the Office for National Statistics, the British consumer price index (CPI) registered a 4.6% increase in the 12 months leading up to October, a notable drop from September's 6.7% surge. Contrary to predictions of a 4.8% reading, this marked the lowest inflation rate in two years. Sterling saw a 0.2% decrease on the day, settling at $1.2471 by 0724 GMT, compared to $1.2487 just before the data release.

The euro also experienced a modest 0.1% gain against the pound, reaching 87.135 pence. Core inflation, excluding food and energy prices, followed suit by rising less than expected, clocking in at 5.7% compared to September's 6.1%, and falling below estimates of 5.8%.

Richard Garland, Chief Investment Strategist at Omnis Investments, commented on the situation, stating, "This is a substantial decline in the headline CPI, but was widely anticipated due to year-on-year effects and falling energy prices; nevertheless, it is good news which confirms the downward trend in inflation."

He added,

"It is likely to mean that the bank is in a good position to begin cutting rates in late 2024, but much depends on the strength of the labor market and the economy."

Inflation in the UK has been on a downward trajectory since October of the previous year when it reached a four-decade high of 11%. Despite this, it has proven more resilient in Britain compared to other regions, remaining well above the BoE's target rate of 2%.

Prime Minister Rishi Sunak's government pledged to halve inflation by the end of 2023, and the finance ministry announced on Wednesday that it had achieved this goal, with inflation now standing at 4.6%.

The pound had hit a two-month high the previous day, experiencing its most significant one-day rise against the dollar in a year. This surge followed US data revealing the smallest annual increase in underlying consumer inflation in two years, reinforcing the belief that the US Federal Reserve has likely concluded its interest rate hikes.

Market indicators suggest traders anticipate a potential start to rate cuts by the BoE by May of the next year. However, BoE Chief Economist Huw Pill emphasized on Tuesday that the expected fall in inflation, even if just under 5%, would still leave it "much too high," notwithstanding a more than halving in price growth over the past year.

The BoE has consistently underscored that it is not contemplating a cut from its 15-year high in interest rates, even as the British economy hovers close to recessionary conditions.

**Summary:**

The British pound experiences a dip as British inflation in October drops more than anticipated, raising expectations of Bank of England (BoE) interest rate cuts in 2024. The consumer price index (CPI) shows a notable decrease to 4.6%, the lowest in two years. Despite this, the BoE insists it is far from cutting interest rates, emphasizing the need to monitor labor market and economic strength. Traders predict a potential start to rate cuts by May 2024, while the UK government claims to have successfully halved inflation by achieving a 4.6% rate.