GBP/CAD: Pound Slightly Up Despite Disappointing Inflation Data

GBP/CAD is advancing on Wednesday after the UK released its inflation data. Currently, the pair is fluctuating at 1.7026, up 0.21% as of 11:34 AM UTC.

The price’s daily gain exceeded the 0.40% level, but the pound declined back after investors realized that the UK consumer prices index (CPI) rose less than expected.

Despite the disappointing inflation data, the sterling manages to stay stronger than the Canadian currency amid declining oil prices, after US President Donald Trump threatened to increase tariffs on Chinese goods if the world’s two biggest economies fail to reach a trade agreement.

UK CPI Fell to Lowest Level in 3 Years

Last month, British inflation declined to the lowest level in three years, according to the Office of National Statistics (ONS). Thus, economists expect the Bank of England to cut interest rates next year.

The ONS said earlier today that consumer prices increased last month by 1.5% year-on-year, lower than 1.7% in September and below analysts’ expectations of a 1.6% increase. The decline was mainly caused by a tariff cap imposed by the power regulator Ofgem, which reduced electricity and gas prices for about 15 million homes.

Gas and electricity prices declined last month by 8.7% and 2.2%, respectively, compared to September. The pressure on inflation was only partially offset by increasing clothing prices. Motor fuel prices were also down.

The ONS noted that it was the lowest CPI reading since November 2016.

EY Item Club economist Howard Archer commented:

“Inflation dipping more than expected to 1.5% in October will likely fan expectations that the Bank of England will cut interest rates before too long if the economy fails to pick up from its current struggles.”

The core CPI, which excludes the prices of energy, fuel, alcohol and tobacco was unchanged at 1.7% year-on-year.

Prices of manufacturers’ raw material and energy tumbled 5.1% year-on-year, which is the largest drop since April 2016. Analysts surveyed by Reuters anticipated a 4.9% fall.

Inflation data confirms economists’ expectations of another rate cut from the BoE.

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