TD Securities expects UK January CPI to slow to 3.1% year-on-year, mainly on food and energy base effects, with core inflation seen unchanged at 3.2%. UK labour market data surprised negatively, with weaker job gains, higher unemployment and slowing wage growth. TD argues this broad wage deceleration should give the Bank of England enough comfort to cut rates in March.

Inflation slowdown and wage deceleration assessed

"We expect inflation to slow to 3.1% y/y in Jan (Mkt: 3.0%, BoE: 2.9%) from 3.4% y/y in Dec."

"Services and core goods inflation are likely to remain roughly unchanged at 4.4% y/y (mkt: 4.3%, BoE: 4.2%, prior: 4.5%), and 1.0% y/y, respectively."

"This leaves core inflation unchanged at 3.2% y/y (Mkt: 3.0%)."

"The UK labour market surprised to the downside in December, with only 52k jobs added on a 3m/3m basis (TD: 113k; mkt: 108k) and the unemployment rate ticking up to 5.2% (TD/mkt: 5.1%), a five-year high."

"The bonus story is unlikely to worry the MPC too much, though the slowdown in wage growth across the board should be comforting enough for a cut in March, especially as slack builds in the labour market, with the unemployment rate now at its highest since the end of 2020."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)