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Services CPI downside surprise should see further SONIA curve inversion

UK DATA

Looking at the components here at first glance it looks as though the surprises were driven by:

  • Restaurants and hotels: This category contributed -0.13ppt to the headline CPI Y/Y change (more than expected). This category has been volatile and was very weak in August, partially rebounded in September and is now weak again. This seemed to be the major downside to services CPI versus the consensus.
  • Overall, given that services CPI was 3 tenths weaker than the BOE expected this looks as though it must have been a broad-based downside surprise to the Bank (although it looks largely driven by the restaurants and hotels category versus consensus).
  • Food prices also look to have fallen more than expected - knocking 0.24ppt off the headline rate. It was expected to contribute negatively, but not that much.
  • This should increase the chance of a cut around May next year - but probably isn't enough of a downward surprise to see much chance of an earlier cut get any significant pricing). We are also likely to see further inversion throughout the curve.
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