The UK Retail Price Index (RPI) rose by 3.8% year on year in January. This was below the forecast of 3.9%.<\/p>\n
The result was 0.1 percentage points under expectations. It indicates a slightly lower annual RPI inflation rate than predicted for the month.<\/p>\n
The January RPI figure coming in slightly below forecast at 3.8% reinforces the view that inflation is on a firm downward path. This continues the trend we observed throughout 2025, when the headline rate fell consistently from above 5%. We now see an increased probability that the Bank of England will move to cut interest rates sooner than previously expected.<\/p>\n
In response, we are seeing the front end of the curve react, with Short Sterling or SONIA futures for the second quarter gaining ground. The market is now pricing in a near 80% probability of a 25 basis point cut by the May Monetary Policy Committee meeting, up significantly from around 60% last week. This makes positioning for lower yields through interest rate derivatives an increasingly popular trade.<\/p>\n
Gilt futures are a direct beneficiary of this sentiment, and we expect further upward momentum in the coming weeks. The 2-year Gilt yield, which is highly sensitive to Bank Rate expectations, has already fallen 10 basis points in early trading. We saw a similar dynamic in late 2023 when softer inflation data led to a sharp rally in government bonds.<\/p>\n
This prospect of earlier rate cuts is weighing on Sterling. We anticipate the GBP\/USD currency pair will struggle to maintain levels above 1.28 as the UK’s yield advantage over the US narrows. Derivative traders should consider buying GBP puts as a straightforward way to position for potential downside in the pound.<\/p>\n
This inflation data does not exist in a vacuum; it comes after Q4 2025 GDP figures showed the economy barely grew at 0.1%. This combination of falling inflation and economic stagnation provides a strong foundation for our view that the Bank will prioritize growth. This gives us confidence that the path of least resistance for UK rates is lower.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" UK January RPI inflation rose 3.8% year-on-year, slightly below 3.9% forecast, undershooting expectations by 0.1 points.<\/p>\n","protected":false},"author":62,"featured_media":17036,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42156","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42156","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=42156"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42156\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17036"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}