ING’s Chris Turner relays UK economist James Smith’s view that underlying United Kingdom (UK) inflation is moving in the right direction despite slightly higher core data. Falling food and petrol prices and softer core services inflation suggest domestically generated inflation is benign. Sterling is a bit weaker on the data, and EUR/GBP may have set a significant low at 0.8455.

Benign inflation weighs on Pound

"Despite the slightly higher-than-expected UK June core inflation data this morning, ING's UK economist, James Smith, thinks the underlying trend is heading in the right direction. Here is what he says:"

""Firstly, headline inflation fell more than expected on a second-consecutive monthly fall in food prices. This basically never happened – and wasn't what was supposed to happen after the Iran war. Yes, the impact on food inflation will take several months to come through in full, but for the Bank of England hawks who worry about the salience of food and petrol prices for consumer inflation expectations, the fact you have both falling in outright terms between May and June is welcome news. Then on services, when we calculate the BoE's preferred 'core services' metric excluding volatile and indexed categories, that fell more sharply than overall services inflation – from 3.8% to 3.6%. The trend looks good, and together with low private-sector wage growth, suggests domestically-generated inflation is benign right now.""

"Sterling is a little weaker on the data and EUR/GBP may well have put in a significant low at 0.8455 last week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)