BoE can breathe a sigh of relief, but caution still needed – Commerzbank

British inflation surprises downwards. Commerzbank economists analyze the outlook for the Bank of England.

There is a certain risk that the return to the inflation target will be bumpy

Wednesday’s UK inflation figures surprised to the downside. If there are no new surprises on the rise in inflation in the coming months, it is unlikely that the Bank of England will raise interest rates again. Instead, the focus is likely to increasingly focus on rate cuts.

For the moment, we remain cautious. A surprise data does not mean the all-clear has been given, and given the surprising stubbornness of British inflation so far, there is certainly a risk that the return to the inflation target will be bumpy. Tuesday’s much stronger than expected wage data also supports this view.

For now, the BoE can breathe a sigh of relief, but caution remains necessary. The Pound’s rather subdued reaction suggests that the market is taking a similar stance.