United Kingdom households get some relief as inflation dips

British Pound Today: UK Inflation Data and Bank of England in Focus for Sterling

The British pound dipped on Tuesday, erasing some of its earlier gains after data showed United Kingdom inflation slowed more than expected in February.

Tuesday's data, due out at 09:30 London time, are crucial to the market's perception of United Kingdom inflation pressures.

This left the consumer price index substantially above the BoE's 2% target and prompted the Bank to raise its interest rate for the first time in a decade during the same month.

Prices were 2.7% higher than a year ago, according to data from the Office for National Statistics, down from 3% in January.

Markets are looking for headline inflation to fall back to 2.8% in February, from 3% in the previous month, while the "core" rate of inflation is seen slipping from 2.7% to 2.5%.

Against the dollar, sterling had traded up 0.2 percent at $1.4054 before the data was released and then fell below $1.40.

Gilt futures also gained marginally.

Transport prices dragged on the cost of living in February, securing a smaller month-on-month rise of 0.5% in contrast to 1.2% a year ago.

Paul Hollingsworth, senior United Kingdom economist at Capital Economics, said the fall in inflation "confirms that we have now reached a turning point" but that this did not diminish the case for a rate hike in May.

Viraj Patel, an analyst at ING, said United Kingdom core inflation of 2.5 percent was "high and sticky enough" to warrant the Bank of England's inflation-driven tightening bias.

Paul Hollingsworth of Capital Economics does not believe that this lower than expected figure will put the MPC off an interest rate hike this May.

"It’s still likely that the Bank of England will signal on Thursday that an interest rate hike is coming in May".

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