UK inflation holds at 3.8%: markets price earlier BoE cuts as precious metals cool

UK inflation held at 3.8% year-on-year in September, confounding many forecasters who had pencilled in a re-acceleration to 4.0%. Under the hood, core CPI came in softer than expected, and the month-on-month prints for both headline and core were flat, signalling no fresh price pressure through the month.

Market reaction was broadly supportive. Rates markets brought forward expectations for Bank of England easing, and gilt yields and the pound edged lower as traders reassessed the timing and pace of cuts. That said, one key sticking point remains: services inflation is still elevated. Given the BoE’s sensitivity to domestically driven price pressures, policymakers are likely to wait for one or two additional benign prints before committing to a decisive shift in the rate path.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.

Meanwhile, precious metals are digesting Monday’s shock move. After one of the largest selloffs in a decade, gold and silver tried to bounce, but momentum remains skewed to the downside. This looks more like positioning wash-out and mean reversion than a change in fundamentals: the trade had run hot into this week, and elements of a short squeeze had crept in. With some of the overbought conditions now reset, the path of least resistance is likely a range-bound consolidation as investors re-centre expectations for the complex.

Equities are marking time. With few fresh catalysts, indices are chopping sideways while investors scan incoming earnings for guidance on margins, capex and demand. The next macro waypoint is Friday’s U.S. CPI, which could re-set rate expectations globally and, by extension, equity multiples. Until then, price action is likely to stay headline-driven with earnings micro and rates macro pulling in opposite directions.

What to watch next

UK services inflation & wages: Confirmation that domestic price pressures are cooling would firm up the case for earlier BoE easing.

U.S. CPI (Fri): With markets expecting the Fed to accept a period of above-average inflation whilst still easing rates, the event could turn into a risk-on driver if things go as planned.

Precious-metals flows: ETF holdings and futures positioning will help gauge whether the flush is over or has further to run.

Earnings cadence: Guidance on demand and pricing power will determine whether equity markets can break out of consolidation.