U.K. Producer Prices Fall Less Than Expected Despite the Record Drop in Energy Costs

Daily Forex Fundamentals | Written by DailyFX | Dec 08 08 10:26 GMT |

U.K. Nov PPI came in stronger than expected, with factory gate prices having decelerated to 5.1% y/y (median 5.0%) from 6.7% in October (revised down from 6.8%), while prices fell 0.7% m/m (median -0.8%). However, core output PPI surprisingly rose by 0.2% on the month, pushing the y/y rate up to 5.1% from 5.0% (revised up from 4.9%), far above the consensus estimate for 4.4% y/y. Input prices fell 3.3% on the month (median -2.5%) after falling 4.3% in October and reaching 7.5% y/y, its lowest annual rate since September last year and compared to our survey median for 6.8%. Overall, the fact that core factory gate prices did not come down in November shows that some stickiness still exists, despite weakening demand. However, we expect producers to be forced to cut its core prices next year as both domestic and global demand weakens sharply, squeezing profit margins. Meanwhile, GBP consolidated after U.K. PPI, which was stronger than expected, with factory gate prices coming in at 5.1% y/y from October's 6.7%. Core output PPI rose by 0.2% m/m, which was well above the market consensus, but we still expect prices to come down next year as weakening demand forces a cut in core prices. Cable showed little reaction on the release and consolidated earlier gains to trade close to 1.5000 versus a session peak of 1.5047. EUR-GBP has retraced some of its recent gains to trade back in to 0.8580. The cross rejected 0.8720-25 on Friday after recording a new all time peak of 0.8725 on Thursday. Buying interest was evident from proprietary accounts and macro funds below 0.8600, but the balance of risk is on the downside intra-day after the earlier break below 0.8590. Elsewhere, the latest BoE comments came from Gieve on the weekend calling from more interest rate policy coordination. Gieve would not rule out a zero interest rate in the U.K. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.