Sterling weakened yesterday after data showed that UK inflation rose at its weakest rate in three years. Inflation rate slowed to 1.3% year-on-year in December 2019, the lowest reading since November 2016 and below market consensus of 1.5%. However, the pound has recovered this morning.
After dovish comments from Mark Carney last week and poor GDP data, this has increased expectations for an interest rate cut this month. The markets now predict that there is a 61% chance that the Bank of England will cut rates.
The data showed that clothing & footwear prices dropped 0.8%, after being unchanged in November. The annual core inflation rate, which excludes energy, food, alcoholic beverages and tobacco, fell to 1.4%, also the lowest in nearly three years and below forecasts of 1.7%.
