MNI 5 Things: UK January Only Signals Downward Momentum

By Jai Lakhani

     LONDON (MNI) - --MNI 5 Things: UK January Only Signals Downward Momentum

     UK inflation likely eased further in January after December's 0.2pp drop to

2.1%, data from the Office for National Statistics (ONS) is expected to show

Wednesday. The December reading saw downward pressures from oil and air fares in

particular, with the cooling in oil prices expected to continue in the early

stages of 2019.

     The consensus view amongst analysts is that inflation has finally come back

to the UK's 2.0% target - and will show the lowest y/y reading since January

2017.

     --Deceptive Upside Surprise Could Lower CPI Reading Further

     On average, since 2008, inflation surprises have, on average, been to the

upside by 0.009pp in January. There have been 6 hits, 3 downside misses of 0.1pp

and 2 upside misses of 0.1pp in 2018 and 0.3pp in 2009. Taking the 2009 surprise

out changes the average to a downside surprise of 0.02pp.

     --MPC Sees Inflation Below Target

     Whilst the February inflation report shows inflation staying above target

over the three-year forecast period, the MPC also believe inflation cooled to

1.8% in January, 0.2pp below the MNI median and the weakest y/y rate since

January 2017

     --Clothing and Footwear January Promotions

     Historically, clothing and footwear has always witnessed large m/m drops in

January. Since 1989, the January m/m average is -4.94%. If the average drop is

matched this January, the y/y clothing and footwear CPI rate would be -1.95%. As

this accounts for 7% of the index, it would take 0.1pp off the CPI rate.

     --Fuel Prices To Cut 0.08pp Off CPI

     Pump prices are predicted to take 0.08pp off the CPI rate in January,

according to calculations by MNI using the ONS' weekly road fuel data. The bulk

of the fall comes from petrol, which fell 1.76% m/m compared to 0.89% last year.

     --Ofgem Tariff To Put Further Downward Pressure On Energy CPI

     According to Ofgem, the tariff set on utility prices for the first three

months would result in a lower average standard variable price by 6.7% on

average. Given the 3.2% weight of utilities in this basket, this would take a

further 0.2pp off the headline rate.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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