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Annual CPI fell to 2.4%. It was expected to drop from 2.8% to 2.6%. Monthly CPI rose by 0.2% instead of 0.4%. The Retail Price Index (RPI) slid to 2.9%, below the 1-3% belt. It was predicted to slide from 3.3% to 3.1%. Monthly RPI rose by 0.3%, lower than 0.5% expected. Core CPI should have fallen from 2.4% to 2.3% but actually it dropped as low as 2%.

GBP/USD traded around 1.5230, falling from the highs of 1.5280 and it is now struggling to hold on to 1.52. Deflation is spreading. More British QE cannot be ruled out.

PPI Input plunged by 2.3%, much lower than 1.1% expected. PPI Output fell by 0.1% instead of rising 0.2%.

Earlier in the week, GBP/USD enjoyed the fall of the US dollar. The greenback dropped across the after the speech of FOMC member Charles Evans. Evans, a known dove, did acknowledge the improvement in the economy, but didn’t talk about tapering.

Inflation levels remained relatively high in the period after the financial crisis. In Mervyn King’s last inflation report, he foresaw higher growth and lower inflation.

For more on the pound, here is the GBP USD forecast.

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