HiFX comments on this morning’s CPI data
Andy Scott, economist, HiFX, comments on this morning’s CPI data: “Consumer price inflation fell back to zero last month as lower energy costs continued to keep price growth a long way off the Bank of England’s 2% target rate. Today’s number is unlikely to change the market’s view that a UK rate hike is unlikely to happen in the next six to nine months, despite the Governor maintaining his signal of one around the turn of the year.
“Another signal for delays in a UK rate hike would be a net positive for corporates from a cost of debt servicing point of view, along with its effect on sentiment which will remain underpinned by supportive growth conditions.
“Some Bank of England members have signalled they’re becoming concerned about the outlook for inflation as the economy is expected to continue to grow at a moderate pace, supported by “solid domestic demand”. However they’re facing a clouded forecast horizon with the price of oil and food both lower, putting downwards pressure on the rate of inflation. There’s also the deflationary impact of a weaker Chinese currency following the central bank’s decision to devalue it last month, with China responsible for production of so many of the world’s goods.
“Meanwhile UK wages are growing at an annual rate of 2.5% which is lifting household spending, and supporting those who want to avoid the risks of waiting too long to begin raising rates. In short, there’s no clear winner in the argument for or against raising rates today, and risks to global growth over the next 12 months have increased, making forecasting how the economy will perform in that time all the more difficult.
“Sterling was largely unchanged following the release which was in line with forecasts. It has fallen by over 2% against both the dollar and the euro after economic data for August showed the economy lost some momentum, leading to scaled back rate hike expectations. With the BoE appearing to have lost some credibility, since sterling fails to strengthen on the back of rate hike talk as would usually happen; the economic data will become all the more important over the coming months.”