UK CPI Preview: Focus on Services Inflation Ahead of BoE Meeting
Article published on December 17th, 2024 – 9:57AM UK Time
The UK inflation data for November 2024 shows mixed signals, with services inflation emerging as the standout metric. Given the Bank of England’s focus on services inflation as a key driver of sticky price pressures, this print will likely influence their monetary policy stance.
Key UK Inflation Data for November 2024:
- Core CPI (M/M)(Prev: 0.4%; Forecast: 0.2%)
- Core CPI (Y/Y): (Prev: 3.3%; Forecast: 3.6%)
- Headline CPI (M/M): 0.1% (Prev: 0.6%; Forecast: 0.1%)
- Headline CPI (Y/Y): (Prev: 2.3%; Forecast: 2.6%)
- CPI Services Inflation (Y/Y): (Prev: 5%; Forecast: 5.1%)
Why Services Inflation Matters:
The 5.1% Y/Y rise in services inflation confirms that price pressures in this segment remain persistently above the BoE’s 2% target. Bank of England Governor Andrew Bailey has repeatedly emphasized services inflation as a critical metric for gauging domestic inflationary trends. Elevated services prices, often tied to wage growth and labor costs, highlight challenges in bringing overall inflation sustainably back to target.
Market Impact:
- If Services Inflation Remains Elevated:
- Markets may reduce expectations for BoE rate cuts in 2024.
- GBP could strengthen, while gilt yields may rise as traders adjust for a “higher-for-longer” stance.
- If Inflation Surprises to the Downside:
- Softer core and services inflation could reinforce expectations for BoE easing, weakening GBP and lowering gilt yields.
Conclusion:
As long as services inflation is staying stubbornly high at 5.1%, the BoE will remain cautious. Tomorrow’s print reinforces the BoE’s key focus on services inflation, which could determine the pace and timing of future rate decisions. Furthermore, the strong wage data today shows the difficulty the BoE have in cutting rates with UK Avg Wk Earnings 3M YY (Oct 2024) coming in at 5.2%, well above the maximum forecast of 5%. All of this makes the prospect of inflation falling to 2% a more precarious balcancing act for the BoE to achieve. Inflation data will be key tomorrow.