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Pound falls as UK inflation surprise miss backs BoE rate cut bets

U.K. annual inflation unexpectedly slowed in December 2019 from last month amid growing bets that the Bank of England could ease its monetary policy as early as Jan. 30 to stimulate economic growth.

Annual consumer prices came in at 1.3% in December 2019, down from a three-year low of 1.5% in November 2019, data from the Office for National Statistics showed. The BoE targets a 2% inflation rate.

The consensus estimate of economists polled by Econoday was for the print to remain unchanged at 1.5%.

Month over month, inflation was unchanged.

The pound slid 0.2% versus the dollar around 5:11 a.m. ET. Meanwhile, markets priced in a 47% probability of a rate cut on Jan. 30, compared to a 46% likelihood of policy easing from yesterday and 4% from Jan. 8, according to the BoE watch tool of the CME Group.

Rate cut bets jumped earlier this week after data showed the U.K. economy contracted 0.3% month over month in November 2019.

BoE policymaker Gertjan Vlieghe said he would favor an interest rate cut at the upcoming meeting, if the U.K. economy does not rebound. Another monetary policy committee member, Silvana Tenreyro, also voiced support for a rate cut if the uncertainty surrounding the post-Brexit relationship between the U.K. and EU does not wane.

BoE outgoing Governor Mark Carney said there is presently a debate within the BoE's Monetary Policy Committee over the relative merits of a near term stimulus, or cut in the base rate, to help boost the sluggish U.K. economy. He previously indicated that the central bank could pursue more stimulus measures to spur growth.

The index, including owner occupiers' housing costs, slowed to 1.4% year over year from the previous month's 1.5%. The largest positive contribution to the index came from housing, water, electricity, gas and other fuels while the biggest negative contribution came from accommodation services and clothing.

The index remained steady on a monthly basis.

Separately, the U.K.'s annual producer prices rose 0.9% in December 2019, in line with market estimates, compared to 0.5% in the prior month. The index remained steady on a monthly basis.