UK CPI Inflation Drops More Than Expected in January

February 15, 2023 10:44

The UK CPI inflation report released this morning surprised investors and traders as the headline inflation figure was lower than expected. Market participants will focus on retail sales reports coming from the US and the UK to determine how much consumers have been affected by rising living costs.

Although US inflation was higher than anticipated, it kept the downtrend well in place in the first month of the year after rising at an annualized 6.4%. Consumer prices in the country are still elevated and support the Federal Reserve’s plan to keep raising borrowing costs. According to CME Group’s FedWatch Tool, the probability of a 25 basis points rate hike next month is now nearly 90%.

UK headline inflation softens in January

Data published by the Office for National Statistics (ONS) showed that UK inflation dropped to 10.1%, on an annualised basis, in January. Economists had forecast inflation to come in at 10.3%. Market analysts suggest that this might very well be an indication that inflation in the UK has reached its peak and would validate the Bank of England's decision to implement smaller rate rises.

The index keeps moving away from its 41-year high of 11.1% recorded last year. The British pound lost 0.6% of its value against the US dollar after the report went public.

US retail sales to offer clues about the state of the economy

The  US Census Bureau will release its January retail sales report later today. Market analysts expect retail sales to have surged by 1.8% on a monthly basis, after recording two negative months in November and December.

According to Mastercard SpendingPulse, U.S. retail sales, excluding automobiles, were up 8.8% year-over-year in January. The same report showed that e-commerce sales were up 8.4% year-over-year, while in-store sales were up 8.9% year-over-year. Mastercard’s economists suggested that “the strength in the labor market remains a critical support for consumer purchasing power, and we’re seeing this reflected in our SpendingPulse insights for January.”

Australian unemployment rate likely to have remained unchanged

On Thursday morning, the Australian Bureau of Statistics (ABS) will reveal the January unemployment rate figure. Analysts suggest that the rate remained unchanged at 3.5% in the first month of the year.

UK retail sales hurt by rising living costs?

On Friday, retail sales data released by the Office for National Statistics (ONS) is expected to show how UK consumers coped with inflation in January. According to analysts’ expectations, retail sales are expected to have dropped by 0.5% and 5.5% on a month-to-month and year-on-year basis, respectively.

Economists noted that in December, although the sales volume was lower than recorded in November, the total amount of money spent remained unchanged.

The E-commerce Delivery Benchmark Report 2023 suggests that UK retail sales volumes are set to fall 4.9% in 2023 compared to last year, while 7 out of 10 consumers plan to change their buying habits and reduce spending to adapt with recession.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.