What about December?
If you listen closely, you can almost hear the sleigh bells ringing. December is just around the corner and as the angst towards those who put up decorations sometime in late summer fades in favour of cheer and good will to all men, it’ll soon be year-end. Before that however, at the very least the Bank of England will have a very important monetary policy decision. With the MPC meeting decision due to be published on 18th December, yesterday’s CPI data may just have sealed the fate of this forthcoming decision.
Taking a closer look at yesterday’s CPI publication from the ONS, we see core and headline CPI outpacing expectations. The former recorded in at 3.3% with headline inflation coming in a smidge over target and forecast at 2.3%. That is a concern, however, we know that as far as interest rate policy is concerned, the BoE is almost exclusively focussed on the services component of inflation. The services CPI measure also rose from 4.9% to 5% and was a major catalyst for early GBP buying prior to the European market open yesterday.
There are limitations to this data. Firstly, even though services inflation is a stripped back sub-set of headline inflation components, it still considers many elements that the monetary authority notes are less useful to quantify true demand and price inflation within the economy. These include elements such as airfares which were main drivers of the October report published yesterday. Secondly, the BoE itself had forecast such a rise making it less of a shock to markets. Overall, this publication is likely to push the Bank away from a potential cut in December. The next BoE decision, due 24th December, will also be the publication date of the next CPI report.
Discussion and Analysis by Charles Porter
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