The United Kingdom Producer Price Index (Output), month-on-month and not seasonally adjusted, was 0% in January. That was below the 0.2% forecast.
This means output prices did not change over the month. The result was 0.2 percentage points under expectations.
Producer Inflation Signals Cooling
Factory gate prices were flat in January, missing the market’s call for a small rise. This suggests producer-level inflation is easing faster than expected. It also shows manufacturers have less power to raise prices, which points to a cooling economy.
This report supports the latest consumer inflation data, where headline CPI fell to 2.1% last month—close to the Bank of England’s 2% target. The Bank kept rates steady through the second half of 2025 because inflation stayed high. These new numbers suggest that reason is fading.
Cooling prices, along with ONS figures showing GDP rose just 0.1% in Q4 2025, strengthen the case for an earlier rate cut. Markets may now raise the odds of a Bank of England move before summer. This is a clear shift from much of last year’s view.
For our currency positions, this outlook may weigh on the British pound. Lower rates tend to make sterling less attractive than higher-yielding currencies. We should consider trades that benefit from a weaker GBP, especially versus the US dollar.
Market Positioning Implications
In fixed income, this is positive for UK government bonds. Gilt yields may keep falling as markets price in a more dovish Bank of England. Long positions in gilt futures or related derivatives could perform well in the coming weeks.
This backdrop can also help UK equities, especially domestic firms in the FTSE 250. Lower rates cut borrowing costs and can support growth, which may help earnings. We may consider call options on UK indices to capture potential upside.
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