DAVY VIEW

This morning’s UK’s CPI release, showing inflation accelerating to 5.4% in December, is ahead of market expectations – pointing to more persistent price pressures. Core inflation rose to 4.2%, its highest rate since 1992. It is now possible that CPI inflation could rise to 7% in April, when the next round of energy price rises will take effect. In this context, it isn’t surprising that the market is now pricing in four rate hikes in 2022, starting at the next Bank of England policy meeting on February 3rd.