GBP/USD: UK government hits inflation target, but it’s not all down to policy
UK prime minister Rishi Sunak says the government has done what it said it would in bringing down UK inflation, but economists say the main drop has been fuel costs.
Much of this has already been priced in, as is evidenced by the relatively small move in GBP/USD. The retracement of the move in sterling from yesterday’s sharp move for the dollar, shows that traders were expecting this risk today.
(AI Video Transcript)
UK CPI data
The UK recently had some not-so-great numbers when it comes to prices. Consumer prices, producer prices, and retail prices all showed a decline in October. Inflation dropped to 4.6% year-on-year, which was lower than what was expected (people thought it would be 4.8%). Producer prices fell even further than anticipated, at -0.6%. And retail prices came in at 6.1% instead of the expected 6.4%.
What does all of this mean? Well, it means that the government's goal to bring down inflation by the end of the year has actually been achieved sooner than expected. But here's the thing - the drop in energy prices is a big reason why inflation has gone down. So the politicians can't take all the credit.
US dollar
These numbers also had an impact on the pound (which is the UK's currency). The GBP actually got stronger against the USD yesterday because inflation in the US wasn't so great either. But today, the pound is down at 124.65, which is close to the 200-day average. This drop is because the inflation figures in the UK were weaker than people thought they would be.
UK inflation
So basically, the UK has seen a decrease in prices, especially when it comes to energy. This decrease has helped bring down inflation, but it hasn't been all thanks to the government. And the currency has been affected too, with the pound getting stronger for a bit, but then dropping again. And that's the summary of the video for someone who doesn't know much about trading.
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