The U.K. has been one of the first countries to get inflation back to within its central bank’s stated target range of 2%-3%. Core inflation jumped back into the Bank of England’s preferred range in April 2017 and since then it has averaged 2.60%.
The annual rate of U.K. consumer inflation fell back in February as price increases of transport and food slowed. Consumer price index (CPI) figures released by the Office of National Statistics (ONS) indicated seasonally-adjusted consumer prices rose by 0.5% over the month, slightly under expectations and a complete reversal of January’s comparable figure of -0.5%. However, on a 12-month basis, the consumer inflation rate fell back from 3.0% to 2.5% (seasonally adjusted).
Bond markets reacted by sending gilt yields higher. ANZ’s Daniel Been noted this increase “despite core inflation dropping faster than anticipated.” 5 year yields increased by +6bps to 1.20% and 10 year yields increased by +4bps to 1.48%. In currency markets, sterling was lower against the USD but higher against the euro. However, markets may just be pre-positioning before the March FOMC meeting.
