A huge miss in UK inflation is casting serious doubts about whether the Bank of England will hike rates. Headline CPI decelerated from 6.8% to 6.7% in August, despite expectations of a rebound to 7.0%. Most importantly, core inflation slowed significantly, from 6.9% to 6.2% (consensus was 6.8%). Service inflation, which is the gauge the BoE is mostly focused on, fell from 7.4% to 6.8%, which is below the bank’s own August forecast. 

Our economics team continues to marginally favour one final rate hike. If we are right, there is clearly more room for a GBP-positive outcome, given today’s post-CPI drop in the Pound.