British inflation fell unexpectedly to 2.5% in December, accompanied by lower core and services inflation rates, enhancing prospects for a Bank of England rate cut.
The significant decline in services inflation, especially from hotels, suggests that the Bank of England may be able to cut rates faster than previously anticipated.
A drop in gilt yields should alleviate pressure on the Chancellor, providing some fiscal headroom as the UK approaches the Spring Budget.
The market is uncertain about the pound's movement; typically, prospects of lower yields would reduce its appeal, yet they may offer fiscal relief to the Chancellor.
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