UK inflation falls to 1.2% – lowest in 5 years

UK inflation fell to 1.2%, well below expectations for 1.4% and last month’s 1.5%. RPI  dropped to 2.3% as expected but core CPI also disappointed with a big fall to 1.5%, significantly worse than 1.8% predicted. The fall in both headline and core inflation is worrying. This is the lowest in 5 years.

GBP/USD is at 1.5980, a fall of 35  pips in the immediate reaction. Update: the pair has already hit 1.5960. Will the BOE push back a rate hike until August 2015?

The UK was expected to report a slide in inflation to 1.4% y/y for the month of September, down from 1.5% in August. Core CPI carried expectations for a dip to 1.8% and the Retail Price Index (RPI) to 2.3%.Falling  inflation lowers the chance of an early rate hike.

While headline inflation is also a result of lower energy prices, the fall in core inflation is also a  reflection of the lack of rises in salaries. Tomorrow we get the employment and wages data. See  how to trade  the Average Earnings Index with GBPUSD.

GBP/USD was sliding towards the publication, trading around 1.6020. The pair traded above 1.6050 earlier in the day.

Other figures: PPI Input was predicted to drop by 0.4% m/m but actually fell by 0.6% and PPI Output by 0.1% and that’s the actual figure as well. The official House Price Index was expected to boast a rise of 12.3% year over year, showing that the housing sector is in a world of its own, but it remained at 11.7%.

The pound has been under pressure amid the global gloom and rate hike expectations have been pushed back. The  same happens in the US, but the greenback currently has the upper hand.

1.60 is naturally  a support line, and 1.6150 is strong resistance. For more, see the GBPUSD forecast.