GBP/CAD is declining on Wednesday after attempting a bullish trend in the morning. Currently, the pair is trading at 1.6985, down 0.08% as of 9:25AM UTC.
The pound turned bearish after the UK Office for National Statistics (ONS) published inflation data. British consumer prices growth unexpectedly slowed to a more than three-year low last month, as hotels cut prices. The inflation update is likely to force the Bank of England (BoE) to cut interest rates soon.
The consumer prices index (CPI) increased at an annual rate of 1.3% in December, after 1.5% in November. This is the smallest growth since November 2016. Analysts polled by Reuters expected another increase of 1.5%.
While the ONS data showed prices for the fourth quarter matching the central bank’s 1.4% outlook set in November, the unexpected drop in prices, especially after a decline in the gross domestic product (GDP), will surely add to the BoE’s dovishness. ONS statistician Mike Hardie commented:
“Inflation eased in December as prices for hotel stays dropped. Women’s clothing prices also fell with more items being discounted.”
The hotel sector and clothes were the largest downward contributors to declining inflation. The ONS said that 33% of hotels reported falling prices last month, while 10% reported an increase. Overnight hotel accommodation prices tumbled 7.5% last month.
Clothes prices declined as retailers offered big discounts ahead of Christmas.
The core inflation index (Core CPI), which doesn’t take into account energy, fuel, alcohol, and tobacco, also declined to the lowest level since November 2016. The indicator slowed to 1.4% from 1.7% in November.
The pace of the Retail Price Index (RPI), a separate indicator of inflation, was unchanged at 2.2% in December.
BoE might finally cut the interest rate for the first time since 2016. Several policymakers expressed their inclinations to support a rate cut. The first one to announce the possible change was Governor Mark Carney himself.
Earlier today, MPC member Michael Saunders, who previously voted to cut the interest rate, said she would stick to his view, citing a weak labour market and the economy in general. He said in a speech:
“It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target.”
