Pound falls as British inflation declines

The British pound experienced a decline against both the US dollar and the euro following the release of data indicating a deceleration in UK inflation for November. This development has increased expectations among some market participants that the Bank of England may be inclined towards implementing rate cuts in the foreseeable future.

As per recent figures, the pound depreciated by 0.5 per cent to $1.2663 after initially showing a marginal decline of 0.15 per cent prior to the data announcement. Similarly, the British currency weakened against the euro, which strengthened by 0.35 per cent to 86.55 pence. Concurrently, FTSE stock futures displayed an uptick, rising by 0.8 per cent, while trading in British government bonds had yet to commence.

Data from November revealed that the UK's annual consumer price inflation moderated to 3.9 per cent from 4.6 per cent recorded in October, marking the most subdued rate since September 2021. This figure fell notably short of the 4.4 per cent forecast projected by economists in a Reuters survey. Additionally, core inflation exhibited a more substantial decline than anticipated, contracting to 5.1 per cent from 5.7 per cent previously.

Despite these developments, it's noteworthy that inflation metrics continue to surpass the Bank of England's 2 per cent target threshold. Yael Selfin, Chief Economist at KPMG UK, commented, "The latest inflation data will reinforce the Bank of England's stance that it remains premature to contemplate interest rate reductions, especially given that core inflation remains notably elevated compared to levels aligned with the inflation target."

Market indicators currently reflect full anticipation of a 25 basis point rate cut by the Bank of England in June 2024. Additionally, they suggest a probability exceeding 50 per cent for a rate reduction in May.

(With Reuters inputs)