The UK Producer Price Index (input), month on month and not seasonally adjusted, rose 0.4% in January. This matched the forecast of 0.4%.
January’s producer input price data came in at 0.4%, exactly as expected. Because there was no surprise, this release is unlikely to trigger sudden moves in UK assets. For derivatives, it supports the current view: inflation pressures remain, but they still look contained.
Policy Implications For The Bank Of England
This steady input cost reading supports the idea that the Bank of England can stay patient. January’s Consumer Price Index was 2.8%, still above the 2% target. This PPI figure gives policymakers no fresh reason to hint at near-term rate cuts. As a result, we expect short-term SONIA futures to remain stable, with markets continuing to price out rate cuts before the summer.
The aggressive rate-hiking cycle in 2025 was needed to bring inflation under control. With that period still fresh in policymakers’ minds, the Bank is unlikely to rush into a quick shift in policy. This data suggests underlying cost pressures have not vanished, which supports a “higher for longer” rate backdrop.
Given this view, selling short-dated FTSE 100 options volatility may be a sensible approach in the coming weeks. With no inflation shock, the odds of a large market move driven by UK policy changes are lower. That can favour range-bound strategies, such as short strangles.
For rates traders, this also supports the case for a flatter yield curve. One approach is to position against the market pricing in large rate cuts in Q2. This could include receiving fixed on longer-dated interest rate swaps, on the view that the current Bank Rate of 4.75% may stay in place for longer than some expect.
Trading Considerations Across Rates And Equity Volatility
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