UK CPI inflation data is just put for January, showing a year on year gain of 5.5%, slightly ahead of expectations.

Given that this is a key metric for the Bank of England when making rate decisions, we feel this continuation of inflation being above 5% (3% above the central bank target rate) cements another rate hike next month. There is some chatter of a potential 50bps, but in our view the MPC will stick to a 25bps raise.

In terms of market reaction, GBP saw a small spike, trading above 1.3560 versus the USD. We’ve noted in our recent FX Review about how GBP already priced in several rate hikes already, so the reaction is muted.

In equities, FTSE 100 pre market dropped ten points, but remains up 0.14% at 7,602 points from yesterdays close. We expect banking stocks to outperform on rate chatter in coming weeks.

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