GBP/USD yawns as UK shop inflation declines

• UK shop inflation falls to 2.5%

The British pound is drifting on Tuesday. In the European session, GBP/USD is trading at 1.2683, down 0.03%.

Shop price, food inflation heads lower

UK shop inflation doesn’t usually make headlines but today’s release was further evidence that inflation is on a downward trend. The British Retail Consortium (BRC) Shop Price index rose 2.5% y/y in February, down from 2.9% in January. This marked the ninth straight monthly decline and was the lowest level since March 2022. The BRC also reported that food inflation dropped sharply in January, from 6.1% to 5.1%.

The data follows the January CPI report, which remained at 4%, lower than the market estimate of 4.1%. Food and energy prices have been falling and wage growth has been easing. These are encouraging signs for the Bank of England, but inflation still remains double the Bank of England’s target of 2%, which means that the battle to rein in inflation is far from over.

The BoE has maintained the cash rate at 5.25% since August and meets next on March 21. Governor Bailey has been pushing back against expectations of a rate cut later this year but may have signaled a pivot in policy earlier this month. Bailey told a parliamentary committee last week that it was “not unreasonable” for investors to bet on rate cuts later this year. Earlier this month, Bailey said that high rates were “under review” but the BoE was concerned that inflation could rebound even if it fell to 2%.

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GBP/USD Technical

• There is resistance at 1.2728 and 1.2785
• 1.2654 and 1.2597 are providing support