Price Rises In The UK Cooled Off Last Month

Price Rises In The UK Cooled Off Last Month
Reda Farran, CFA

2 months ago2 mins

What’s going on here?

Consumer prices in the UK rose at their slowest pace in over two years, and that has Brits wondering when their central bank might start talking about interest rate cuts.

What does this mean?

British prices climbed by 3.9% in November – well below the 4.4% economists had expected. That no doubt had shoppers stepping out from under their umbrellas: just a month earlier, inflation was at 4.6% (to say nothing of the double-digit pace at the start of the year). Sure, the latest slowdown was mainly driven by lower energy and food costs. But even core inflation, which excludes these more volatile prices, fell sharply – to 5.1% from 5.7% the month before.

UK inflation
Source: Office for National Statistics

Why should I care?

For markets: Good news for stocks

This cooldown came after the Bank of England (BoE) unleashed a barrage of icy-cold interest rate hikes to chill the economy and its red-hot inflation. Now the question is when the BoE will start to warm things up again. Traders seem to think that’ll happen soon: they’re already expecting the central bank to fire off five cuts next year. And that’s sent the British pound lower, since smaller interest rates make a currency less attractive to international investors and savers. But it’s given a boost to big stocks in London. After all, cheaper borrowing costs and a weaker pound would be good for major British companies that sell their wares overseas.

GBP to USD
Source: Google Finance

The bigger picture: Not so fast.

Nobody said markets are patient. Traders were already betting on four rate cuts next year, even before this data. And it seems like nothing the central bank can say will convince them otherwise. Just a week ago, the BoE was trying to tamp down expectations, warning that there are still miles to go in the battle against rising prices. And it’s got a point: inflation is still almost double the Bank’s 2% target and considerably higher than in the US and eurozone.

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