HiFX comments on the latest UK inflation report
Andy Scott, associate director at HiFX, comments on the latest UK inflation report.
Andy said: “As today’s figures show, UK unemployment is continuing to fall albeit at a slower rate. We’re now seeing average earnings heading back up after hitting a record low in August. Rising earnings are a good thing as far as the economy is concerned, easing downwards pressure on households’ disposable income, leading to increases in consumer spending. However, earnings still have to rise further before they match inflation, and that’s a core focus for the Bank of England. Today’s quarterly inflation report revealed that the Bank expects the dip in inflation to continue, maintaining their positive GDP growth outlook, however, with only a 0.1% drop in its forecast for next year to 2.9%.
“As inflation slows and global growth risks increase, there will be less pressure to raise rates even if the economy remains on its forecasted growth trajectory. Although the overall tone of the report was expected, sterling fell from its intraday highs against the dollar, and the euro by around 0.5% to 1.5870 and 1.2735 respectively. The upside of potential higher interest rates for the pound has been diminished by the declining trend in inflation. However, the economy still looks in good shape, especially compared to the eurozone. We maintain a favourable bias for GBP/EUR towards 1.3500 into next year and expect GBP/USD to recovery marginally back over the 1.6000 level.”
