UK CPI Hits 12-Month Low

The latest CPI data this week has once again highlighted a loss of momentum in the UK economy. The data comes after a weaker than expected Q4 2018 GDP print and a BOE 2019 growth outlook that was revised sharply lower. There was also the raft of weaker than expected PMI readings.

UK CPI fell to 1.8% in January, down from the prior month’s 2.1% reading. This was below the forecast 1.9% level the market was expecting. This latest reading sees UK CPI hitting its lowest level since January 2017, now down sharply from the November 2017 peak of 3.1%.

Commenting on the decline, Mike Hardie who is head of inflation for the Office for National statistics said:

“The fall in inflation is due mainly to cheaper gas, electricity, and petrol, partly offset by rising ferry ticket prices and airfares falling more slowly than this time last year.”

The price cap introduced by Ofgem, which went active at the start of the year, has also weighed on inflation prices. However, with the cap being lifted, it should feed into higher inflation prices once again going forward.

The BOE will be carefully monitoring the trend in inflation, which has fallen steadily since August 2018 and is now back below the bank’s 2% target. However, UK consumers will be happy with the latest data, since the current wage growth of 3.3% is allowing Britons to enjoy the most disposable income since before the 2016 Brexit referendum.

Technical Perspective

While GBP has been knocked lower by the data, UK equities are pushing higher as further BOE rate hikesare further postponed due to recent growth and inflation readings.

The FTSE is now challenging the 7195.1 – 7267.4 resistance zone formed at the September 2018 swing low and the November 2018 swing high. Above here, bulls have clear water up to a test of the next key resistance zone between 7488.5 – 7558.6. Here, we have further structural levels as well as the bearish trend line from 2018 highs.