UK September Consumer Price Index

The UK’s YoY consumer price index (CPI) will be released Wednesday October 19th, 2022, while the government is mixing QE through the bank of England sovereign bonds’ purchasing that ended last Friday October the 14th  and QT by acting on interest rate hikes for taming inflation aside of aggressive internal political confrontations that escalated by few members of the UK political parties asking Liz to step down days after assigning the new finance minister Jeremy Hunt. UK retail sales decreased 5.4% in August YoY, more than the market forecast of -4.2% meanwhile the unemployment rate decreased to a new low since 1974 to 3.5% in the last reading in August and below July’s 3.6%. 


September forecasted YoY CPI is 10%, 0.1% more than August’s 9.9% and close to July’s 10.1%. As stated by the office of national statistics, the relatively high contribution to the rate since April 2022 came mainly from electricity, gas and other fuels. This reflects price rises for gas and electricity following the increase in the Office of Gas and Electricity Markets (Ofgem) cap on energy prices on 1 April 2022. Electricity prices rose by 54.0% and gas prices by 95.7% in the 12 months to August 2022, leading to a 1.84 percentage point contribution to the annual inflation rate from electricity, gas and other fuels in total but the good news is that the fall of motor fuels made the largest downward contribution to the change in the CPI annual inflation rate between July and August. The next change to the Ofgem energy price cap is due in October 2022 and lately the government announced the cap lift off next April 2023.


Source: -United kingdom CPI and Interest rate


The UK gilt “bond” market is challenging both the government and Bank of London’s capacity to push the breaks on the selloff. UK gilts’ yield accelerated February 2022 from 1.49%, 1.55% and 1.62% for the 2yrs, 10yrs and 30yrs gilts to 3.65% 4.024% and 4.408% respectively, the yield doubled in 8 months and accelerated by intensive selloff since September 23rd lead by the 30yrs gilt which is contributing most of the concern when Hunt's predecessor, Kwasi Kwarteng, announced a string of unfunded tax cuts without publishing a set of independent economic forecasts.


Source: -United kingdom Bonds’ yield


At the time this report is developed, news circulated that the government would slow down its tightening policy soon to hold up long term gilt’s spiking yields. Accordingly, Liz should be prepared with different scenarios when it comes to the CPI reading which would be in their favor if it reads below the 10% forecast. On another note, the down trending GBP/USD on weekly chart retraced back its 5% loss from w/o September 19th sell off driving it back to $1.12 with a developing momentum to test back 1.1495 and its second resistance is at 1.1705. GBP/USD weekly support levels are 1.1169 and 1.0854.


Source: -GBP/USD weekly chart


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