Breaking News!: UK annualized inflation falls to 10.5% in December vs. 10.6% forecast

• UK CPI softens to 10.5% year-on-year in December, versus 10.6% expected.
• UK monthly CPI stands at 0.4% in December, versus 0.4% expected.

The Annualized UK Consumer Price Index (CPI) stood at 10.5% in December, up from 10.7% in November, and missed estimates of 10.6%, the UK’s Office for National Statistics (ONS) reported on Wednesday. The index continues to retreat from its highest level since December 1981.

For his part, core inflation (excluding food and energy volatility) rose 6.3% YoY last month, up from 6.3% in November and below forecasts of 6.6%.

Monthly figures showed UK consumer prices rose 0.4% in December, up from 0.4% expected and 0.4% previously.

The December UK Retail Consumer Price Index was 0.6% MoM and 13.4% YoYbelow expectations throughout the time horizon.

Other data (via ONS)

“The largest upward contributions to the IPCH annual inflation rate in December 2022 came from housing and domestic services (mainly electricity, gas and other fuels), and from food and non-alcoholic beverages.”

“The largest downward contribution to the change in the annual inflation rates of both the IPCH and the CPI between November and December 2022 came from transportation (particularly automotive fuels), clothing and footwear, and recreation and culture, with rising prices in restaurants and hotels, and food and non-alcoholic beverages making the largest upward contributions partially offset.”

Why is UK inflation important to traders?

The Bank of England is tasked with keeping inflation, as measured by the main Consumer Price Index (CPI), at around 2%, which gives the monthly its importance. An increase in inflation implies an ever faster increase in interest rates or a reduction in the purchase of bonds by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price increases indicates a looser monetary policy. A higher than expected result tends to be bullish for the GBP.