U.K. inflation yet again decelerated less sharply than expected. January CPI fell 0.7% m/m (median -0.9%) and the annual rate slipped to 3.0% from 3.1%, below our survey median for 2.8% but right in line with our own estimate. ONS reported significant upward contribution to the y/y rate from recreation and culture, furniture and alcohol, after significant discounts in December. Core CPI rose to 1.3% y/y from 1.1%. Meanwhile, retail prices fell more rapidly on the month, with the sharp BoE rate cuts adding further downward pressure. RPI fell 1.3% m/m (median -0.7%), pushing the y/y rate down to 0.1% from 0.9% and the RPIX slowed to 2.4% y/y from 2.8%. Data hence shows that some price stickiness remain in Britain, lowering deflation risk.

Meanwhile, GBP rallied sharply after U.K. January CPI came in stronger than expected, while EUR-GBP recorded 0.8870 lows. Cable is trading close to European opening levels after it based at 1.4125. GBP came under pressure in line with the EUR amid concerns over European bank exposure to Eastern Europe following Moody's warning on potential loans losses to the region. Safe haven demand is dominating theme, which has benefited the USD, CHF and JPY. GBP-CHF traded down to 1.6550 lows, but has rebounded to 1.6680, but sellers are expected to remain on strength. Meanwhile, GBP-JPY flushed out stops after it fell from 131.50 down to 129.62 lows before rebounding to 130.50.