Sterling sinks as inflation tumbles in the UK
The UK consumer price headline inflation rate has fallen to 3.9% in the year to November, from 4.6% in October, a bigger dip than expected.
This takes the CPI rate to its lowest it's been in more than two years and will go a long way in helping the Bank of England to cut rates in 2024. The slowdown in inflation was caused by a drop in petrol prices, with motor fuel prices fell by 10.6% in the year to November, compared with a fall of 7.6% in the year to October. Second-hand cars, maintenance and repairs, and air fares also dragged the figure down. Excl food and fuel, the core rate was down from 5.7% to 5.1%, again beating the forecast for a drop to 5.6%.
(AI Video Transcript)
The UK's inflation rate
The UK's inflation rate for November was lower than expected, at 3.9%, down from 4.6% in October. This is the lowest inflation rate in over two years and was mainly caused by a decrease in petrol prices. Other factors that contributed to the drop in inflation include lower second-hand car prices, maintenance and repair costs, and airfares. Motor fuel prices fell by 10.6% in the year leading up to November, compared to a 7.6% decrease in the previous year. The core rate, which excludes food and fuel, also decreased from 5.7% to 5.1%, beating the predicted 5.6%.
The Bank of England
Although producer prices fell, it was not as significant as expected, with a decrease of 0.2% compared to the expected 0.5% decrease. Retail prices increased by 5.3%, which is lower than the expected 5.7%. Overall, inflation is slowing down quite a bit. This news has had an impact on the markets, especially on the value of the Pound Sterling. It is predicted that the Bank of England now has room to lower interest rates, which have been negatively affecting economic growth. This potential interest rate cut and lower mortgage rates could boost consumer confidence.
GBP/USD
Looking at the currency market, the GBP has decreased in value against the USD and the EUR. On the daily chart, there is a significant decline in the Pound against the Euro and a slight decrease against the US Dollar. However, despite the drop, the Pound has managed to stay above a support level against the weaker US Dollar. Overall, the decline in the Pound's value has not had a significant impact on its recent positive performance.
EUR/USD
In simpler terms, the cost of living in the UK in November was not as high as expected. This is because things like petrol, second-hand cars, and flights were cheaper. Due to these lower prices, inflation in the UK has gone down. This means that the value of the Pound has also gone down compared to the EUR/USD. However, this decline in the Pound's value hasn't affected it too much and it is expected to recover. The lower inflation rate gives the Bank of England a chance to lower interest rates, which could help the economy and make it easier for people to borrow money.
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