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Inflation data due at 7:00GMT

UK DATA
  • The consensus sees headline UK CPI +5.4% y/y in January remaining unchanged from December's almost 30-year high. On the month, CPI is seen contracting by -0.2% m/m, after December's +0.5% m/m. Household goods, food and services remain the key upside drivers, alongside energy price inflation proving persistent. Our data team notes that distortions in petrol prices as well as the recent slowdown in earnings growth introduces downside risks to forecasts.
  • UK markets are incredibly sensitive to inflation data at present. Indeed, it is probably the biggest datapoint with labour market data a close second. We note there was a strong reaction in the SONIA futures curve on the open yesterday to the data, with markets pricing in an even more bullish BOE outlook.
  • However, later in the morning and through the afternoon, we saw a bit of a pullback suggesting positions have been cleared out a little ahead of this morning's data. We still expect a larger reaction to a negative print than a positive print, but expect there to be 2-way risks for markets now.
  • Expect any reaction in FX to be amplified when SONIA futures open at 7:30GMT.
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