GBP/CAD declines as persistent UK inflation fails to alter BoE expectations

GBP Weakens Against CAD Amid Persistent UK Inflation

The British Pound slipped against the Canadian Dollar on Wednesday, following UK inflation figures that did little to shift market expectations of a gradual policy loosening by the Bank of England (BoE). At the latest check, GBP/CAD hovered near 1.8540, marking a decline of about 0.22% for the day.

UK Inflation Data Remains Elevated

According to the Office for National Statistics, UK consumer prices continued to show resilience in December. The Consumer Price Index (CPI) increased by 0.4% month-over-month, aligning with analyst projections after a 0.2% drop in November. Annually, headline CPI climbed to 3.4% from 3.2%, slightly exceeding the anticipated 3.3%, while core inflation was unchanged at 3.2%.

This modest rise in inflation has dampened expectations for an imminent rate cut at the BoE’s February meeting. Nevertheless, recent employment data indicated a cooling job market, suggesting that rate reductions could still be on the table later in the year as officials weigh persistent inflation against slowing economic growth.

BoE Policy Outlook

BoE Governor Andrew Bailey stated last month that he anticipates inflation will return to the Monetary Policy Committee’s 2% target by mid-year.

As reported by BHH, the swaps market currently reflects more than an 80% probability that the BoE will lower interest rates by a total of 50 basis points over the coming year.

Additional UK Price Indicators

Elsewhere in the inflation report, Producer Price Index (PPI) figures suggested easing cost pressures for manufacturers, even as the Retail Price Index (RPI) highlighted ongoing retail inflation. PPI output prices were unchanged in December, with the annual pace steady at 3.4%. In contrast, RPI increased by 0.7% month-on-month after a previous 0.4% decline, pushing the yearly rate up to 4.2% from 3.8%.

Canadian Economic Data Remains Light

On the Canadian front, the economic calendar offered little in the way of major releases, with only secondary data available. The Industrial Product Price Index dropped 0.6% in December, missing expectations for a 0.3% gain. Meanwhile, the Raw Materials Price Index rose 0.5% on the month, outperforming forecasts that had predicted a 0.5% decrease.