U.K. Inflation Expected to Cool

Analysts lowered United Kingdom inflation expectations for December to 4.2% from 5.0% in November with expectation for an even lower rate in the beginning of 2012. There has been pressure for downward pricing on transport and energy within the region and this will likely impact inflation through the February period. Retailers have added to this as prices were cut during December for the Christmas holiday. Consumer prices had risen 4.2% for the year after there was a 4.8% increase for the month of November. London’s Office for National Statistics will publish the data later this morning.

Additionally, tomorrow analysts expect the labor market to report that the jobless rate continued at a 15 year high. Jobless claims are expected to have increased by 7,000 for December. The rate for quarter through November 2011 was recorded at 8.3%, a high not seen since 1996, according to the International Labour Organization.

The Bank of England has stated that inflation will weigh heavily on the economy’s health this year. Last year a sales tax increase had been implemented affecting economic growth. Lowered retail prices from large retailers and energy costs from the largest energy suppliers are current factors of the economy’s health. The Bank of England has been purchasing government bonds to support regional economics. They have achieved to maintain asset purchase levels at 275 billion pounds for last week. They project that inflation will soften to 1.7% at the end of this year, lower than the country’s aim of 2%.

The GBPUSD bounced off support at 1.5300 and is waiting for further direction. If inflation cools as expected and the GBPUSD breaks below support at 1.5300, the GBPUSD might make a run towards support at 1.5200. The trend remain bearish for the GBPUSD with the pair making lower lows since November 2011. 

Eugene Ross, Analyst

Admiral Markets

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