British inflation bounces, forcing pound to one year dollar lead

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Britain’s annual inflation rate accelerated in August, mainly on rising prices for motor fuels and clothing, sending the pound to a year-high versus the dollar, official data showed on Tuesday.

The Office for National Statistics said in a statement that the Consumer Prices Index (CPI) 12-month rate jumped to 2.9 percent in August compared to 2.6 percent in July.

The ONS said, “Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August.”

According to analysts’ consensus forecast, the latest data beat expectations of a gain to 2.8 percent.

The higher-than-predicted figure could meanwhile put pressure on the Bank of England to raise its key interest rate from a record-low level sooner than expected, although it is not forecast to make any change at Thursday’s regular policy meeting.

Chief market analyst at IG trading group, Chris Beauchamp said in following Tuesday’s data, “With the Bank of England meeting this week the hawks may well be emboldened by today’s price growth.”

He furthr added, “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.”

British inflation has risen sharply in recent months as a Brexit-hit pound raises import costs.

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.

Senior market analyst at ETX Capital, Neil Wilson noted, “The inflation data builds a stronger case for the Bank of England to look at hiking rates but it is not yet strong enough for the monetary policy committee to act this week.”

While overall inflation is on the rise, wage growth in Britain has stalled, with some analysts putting the blame partly on Brexit uncertainty, which has seen companies hold back from hiring.

Source: AFP
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