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UK inflation halves to 0.5% in December, lower than expected. While the plunge is related to the fall in the price of oil, also other measures are not shining: core CPI fell to 1.3% and RPI to 1.6% – both lower than expected. This is the lowest level of inflation since May 2000 – nearly 15 years.

GBP/USD falls below 1.51. The low so far is 1.5078: this is still above the cycle lows but a very big fall of 100 pips if we look at levels seen early in the day.

The UK was expected to report a big fall in y/y CPI to 0.7% for December 2014 after 1% in November. Such an outcome is below the 1-3% target range the BOE has to maintain. This implies an Inflation Letter from Governor Carney to Chancellor of the Exchequer George Osborne.

GBP/USD traded lower towards the release, sliding down from near 1.52 to around 1.5110.

Other inflation figures:

  • Core CPI was expected to  rise from 1.2% to 1.4%. The actual is 1.3%.
  • The Retail Price Index (RPI) carried  expectations for a drop from 2% to 1.7%. Actual: 1.6%.
  • The House Price Index was predicted to cool from 10.4% to 10.1%. The actual number is 10.0%.
  • PPI Input was expected to  fall 2.5% m/m. Actual: -2.4%.
  • PPI Output was expected to fall 0.1% m/m. Actual: -0.3%.

Here is the preview:  GBP/USD: Trading the British CPI

The British pound began 2015 with a big fall against the US dollar, mostly due to the strength of the latter. After a slide to the 1.50 handle, we have seen a recovery following the mixed NFP report from the US.

During 2014, there were expectations for a rate hike from the UK in the spring of 2015 or even the  autumn of 2014. A rate hike may come only well after the May 2015 elections, perhaps towards the end of the week.

More:  GBP/USD: Selling Overdone; Buy On Further Dips – ANZ