Inflation used to hold up pretty well in the UK in the last couple of years, despite economic weakness and Brexit. The weaker GBP has kept inflation up after GBP/USD collapsed, following the Brexit vote. But, in recent months the GBP has strengthened climbing from 1.20 in September to 1.35 after the elections, trading around 1.30 now.

As a result, inflation has cooled off considerably and we saw another miss in CPI (consumer pirce index) inflation, as the inflation report released a while ago showed. Below are the CPI and PPI (producer price index) reports:

CPI Inflation Figures

• UK December CPI +1.3% vs +1.5% y/y expected
• Prior +1.5%
• CPI 0.0% vs +0.2% m/m expected
• Prior +0.2%
• Core CPI +1.4% vs +1.7% y/y expected
• Prior +1.7%

PPI Inflation Figures

• PPI output 0.0% vs +0.1% m/m expected
• PPI output +0.9% vs +1.0% y/y expected
• PPI input +0.1% vs +0.2% m/m expected
• PPI input -0.1% vs -0.9% y/y expected

• RPI +0.3% vs +0.4% m/m expected
• RPI +2.2% vs +2.3% y/y expected
• November HPI +2.2% vs +1.0% y/y expected
• Prior +0.7%; revised to +1.3%

YoY CPI lost two points, falling from 1.5% in November to 1.3% in December, while MoM CPI came in flat last month, against 0.2% expected. Core CPI which is more important lost three points, declining to 1.4%. PPI is also softer, although it’s not as important as the CPI. The GBP has turned bearish after that and has fallen 50 pips lower.