• UK CPI softens to 10.7% YoY in November vs. 10.9% expected.
• Monthly UK CPI arrives at 0.4% in November vs. 0.6% expected.
• GBP/USD pares back gains toward 1.2350 on a big miss to the UK CPIs.

The UK annualized Consumer Prices Index (CPI) came in at 10.7% in November against the 11.1% registered in October while missing estimates of a 10.9% print, the UK Office for National Statistics (ONS) reported on Wednesday. The index eased from its highest level since November 1981.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose 6.3% YoY last month versus 6.5% seen in October, missing the forecasts of 6.5%.

The monthly figures showed that the UK consumer prices rose by 0.4% in November vs. 0.6% expectations and 2.0% previous.

The UK Retail Price Index for November arrived at 0.6% MoM and 14.0% YoY, bettering estimates across the time horizon.

Additional takeaways (via ONS)

“The largest upward contributions to the annual CPIH inflation rate in November 2022 came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

“The largest downward contribution to the change in both the CPIH and CPI annual inflation rates between October and November 2022 came from transport, particularly motor fuels, with rising prices in restaurants, cafes and pubs making the largest, partially offsetting, upward contribution.”

FX implications

In an initial reaction to the UK CPI numbers, the GBP/USD pair eased about 15 pips toward 1.2350.

The pair was last seen trading at 1.2365, up 0.10% on the day. The US dollar holds steady heading into the US Federal Reserve policy announcements.

Why does UK inflation matter to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase in interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.