UK: CPI risk for GBP – RBC CM

Economists at RBC Capital Markets, forecasts a touch below consensus for today’s UK CPI (0.8% y/y vs to 0.9%), although much uncertainty surrounds the speed of pass-through of higher import prices that has followed GBP’s fall.

Key Quotes

“On this occasion, and in the coming months (CPI inflation could hit the 2% target in Q1), we think higher inflation is negative news for GBP—the opposite to the typical impact of positive inflation surprises on G10 currencies recently.

With the BoE likely to look through a transitory acceleration in inflation, the main effect will be to squeeze households’ real income as prices rise more quickly than wages, crimping consumer spending. Note that the concurrent selloff in gilts and GBP has continued and become slightly more concerning as real yields are now rising and gilts underperforming.”