GBP Rallies as UK Inflation Rises More Than Expected

Employment

GETTYMore people are in work than ever before according to new figures

Retail inflation, measured by Consumer Price Index (CPI) grew 2.36 percent in July after falling for three successive months. The rise in inflation may prevent the Reserve Bank from any further cut in interest rates, which would have given a boost to industrial production.

The inflation based on consumer price index (CPI) rose to 3.36 per cent in August from 2.36 per cent in the previous month. Prices of pulses continued to decline 24.4 percent in August, as compared with (-) 24.75 percent in July.

The weaker level of the pound was behind the continued rise in clothing prices, as it's become more expensive for importers to bring clothing to the United Kingdom from overseas.

The average United Kingdom house price was GBP226,000 in July, which was GBP11,000 higher than in the same month of the prior year and GBP2,000 higher than last month.

A broader calculation of the CPI, which includes housing costs, also rose at a faster pace in August than July.

"With the Bank of England meeting this week the hawks may well be emboldened by today's price growth, but with the pay squeeze entrenching itself more deeply month by month the policy hawks (wanting a rate hike) will find their room for manoeuvre sorely limited", said Chris Beauchamp, chief market analyst at IG trading group, said following Tuesday's data.

Jobcentre Plus
GETTYThe overall employment rate is the highest since records began in 1971

While the figures may increase pressure on BofE policymakers, the Monetary Policy Committee is expected to hold its key interest rate at 0.25%.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said domestic services inflation edged up 0.1 percentage point to 2.7 per cent, still well below its long-term average.

However sterling hit a year-high at $1.3282 in the wake of Tuesday's data, as traders bet on the timing of rate tightening from the Bank of England.

There has been a bigger-than-expected jump in the rate of inflation, to 2.9% last month, aided by a Brexit-related leap in clothing costs.

That detail, combined with an uncertain economic outlook, makes the BOE's job much harder than just balancing the level of inflation.

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