LONDON - Sterling weakened slightly on Wednesday after data showed British inflation slowed to an annual rate of 2.8% in February from 3.0% in January, also slightly below market expectations.

The pound was last down 0.13% on the dollar at $1.2927 having traded at $1.2940 immediately before the data. It also weakened on the euro, with the common currency up 0.08% at 83.45 pence.

British markets are in focus on Wednesday with finance minister Rachel Reeves set to announce cuts to her spending plans later in the day in an attempt to show investors that she can be trusted to fix the public finances as growth falters.

"The dip in CPI inflation from 3.0% in January to 2.8% in February is a bit of a red herring as inflation will probably be back above 3.0% in April and around 3.5% by September," Paul Dales, chief UK economist at Capital Economics, said.

"That and the risk of spillovers into wages will probably mean the Bank of England will press pause on interest rate cuts at some point in the coming months," he added.

Money markets didn’t change their bets on future Bank of England monetary easing after the inflation figures and priced in a 92% chance of a 25-bps rate cut in August and 40 bps by December. which implies a 60% chance of a second easing move this year.

Yields in 10-year gilt dropped 0.5 bps to 4.75%after hitting a fresh 3-week high at 4.772%.

(Reporting by Alun John and Stefano Rebaudo; editing by Andrew Heavens)


Reuters