As we expected, the softer PPI numbers from yesterday correctly foreshadowed the weaker CPI numbers today. The strength of the British pound is clearly driving inflationary pressures lower throughout the UK which explains why the Bank of England failed to notch up their degree of hawkishness at the last monetary policy meeting.
With both PPI and CPI falling, the BoE could very well skip raising rates next month. Whether or not this may be true will partially be contingent upon the Bank of England?s Quarterly Inflation report tomorrow. If there are any signs of serious hawkishness in that report, then traders may still believe that the BoE could raise rates next month. Aside from the Quarterly Inflation report, we are also expecting UK employment data. The sharp deterioration in the current account reported last week is a clear indication that UK industry is suffering from the strength of the British pound. Therefore we expect hiring to be pared back as well.