Data from the British Office of National Statistics released on Wednesday, 20 December, showed that the annual increase rate in consumer prices dropped in October, moving from 4.6% to 3.9%. The December report suggested that cheaper petrol and diesel prices helped to keep consumer costs down, with the average reading at its lowest since September 2021.
UK Inflation drops and analysts predict rate cuts in 2024
British inflation data released on Tuesday, 19 December, also showed a considerable decrease in November inflation, registering its lowest rate in two years. As a result, investors and analysts are predicting a string of further interest rate cuts from the Bank of England (BoE) in H1 of 2024.
Investor consensus calculates nearly a 50% chance of a preliminary cut by March 2024, slightly overriding a prediction of May 2024 from earlier this year. Along with the decrease in inflation within core services and the better-than-forecasted Consumer Prices Index (CPI) inflation reading of 4.4% from economists at Reuters, the BoE will be closely watching all industries and services coming in the new year.
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In response to the positive data trends so far this week, the pound has moved from $1.271 to $1.266 against the US dollar, losing almost half a cent. British government bond yields also dropped in another hopeful transformation, pointing to a positive entry into 2024.
PwC economist Jake Finney stated:
[Data] provides strong evidence that disinflationary pressures are building in the UK. Headline, core and services inflation are all now materially below the Bank of England’s expectations in their last November Monetary Policy Report.
Core inflation also showed a surprisingly sharp drop, moving from 5.1% to 5.7% in Q4 2023.
