UK CPI Stronger Than Anticipated

Alan Penny

18 December 2019

3 min read

United Kingdom flag

  • CPI year-over-year 1.5%
  • anticipated to be 1.4%
  • PPI input month over month week
  • Core CPI as expected

The United Kingdom released CPI Consumer Price Index (UK CPI) figures, as well as Producer Price Index figures during the early hours on Wednesday. A forward-looking set of “soft data” that predicts inflation, CPI is something that central banks and traders around the world will be paying attention to. There is still the nonsense headlines surrounding Brexit currently clogging the news wire. This time the reaction may be somewhat muted compared to how it would be under normal circumstances.

The UK CPI announcements

The Consumer Price Index came out at 1.5%, as opposed to the expected 1.4% by the market. This is bullish for the British pound, although not enough necessarily to move the Bank of England to start tightening. It does show that there is a little bit of inflation creeping into the British economy, and as a general rule that is good for the currency. Core Consumer Price Index year over year came out at 1.7% as anticipated. This is essentially the CPI without the volatility of automobile sales being factored in.

It does show that there is a little bit of inflation creeping into the British economy, and as a general rule that is good for the currency

The Producers Price Index Input month over month figure came out at -0.3%, which means that the producers around the United Kingdom are buying less to produce goods. This shows that the industrial part of the economy is relatively slow but could be turning around rather rapidly if Brexit finally gets out of the way. The number was expected to be completely flat.

Producers Price Index Output was -0.2%, as opposed to the expected 0.1% month over month. This makes quite a bit of sense considering that the input figures were so weak. It makes no sense however, that producers would be outputting drastically if they are not purchasing raw materials to make goods for consumption.

The British economy is still feeling sluggish

The main take away is that the British economy is still moving rather sluggishly, and therefore it is probably going to be a long and painful recovery from the Brexit vote. Some of this has to be factored to the global slowdown in general, which of course the United Kingdom is not protected from. The market is likely to continue to look at the British economy as a value play more than anything else.

The British pound is historically cheap, and British stocks have taken a bashing recently. The market is likely to continue to see value hunters picking up bits and pieces along the way to build up larger positions in the United Kingdom.

The worst of recent market conditions seems to have passed, but that doesn’t necessarily mean that this market will turn around rather easily and without a certain amount of pain. The market continues to offer value, but it will become much more selectively value-based depending on particular companies in the United Kingdom. As a general rule, blue-chip stocks probably offer the most stable opportunities.

Written By
Alan Penny

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