Excel Currencies Blog

Chancellor Hunt "Inflation rarely falls in a straight line"..

UK inflation for September remains at 6.7% then, missing its 6.6% forecast. Obviously a fine margin miss, but the headline is that inflation has stalled at a higher than needed level once again. Core inflation (the more important reading) at least did fall from 6.2% to 6.1% and so the inflation picture overall is still on the way down.

The textbook would suggest that an upside inflationary surprise should lead to currency strength, however the Pound has been relatively flat on the release. Our best guess would be that the services inflation number has fallen from 7.4% to 6.8%, which would be a welcome sight for the BoE. 
 

The Bank sees services inflation as being prone to elevated inflation expectations and needs to be addressed by raising interest rates. Cooling inflation in services therefore means the steps being taken are working. GBP will continue to perform under pressure as the week goes on.