The latest CPI data, Sterling on the rise
Commenting on the CPI data, Andy Scott, economist at HiFX, said:
“Sterling rose by one cent against the Dollar and around 1% against the Euro on Tuesday, following the release of higher than expected UK inflation data. With the Pound having fallen fairly consistently over the past six weeks due to the Bank of England signalling low inflation would mean rates staying on hold for longer; the news of a pickup in consumer prices gave a reason for the market to buy Sterling.
“Annual inflation rising just 0.2% is far from a game changer in terms of the outlook for UK rates to remain on hold into 2017, but it comes at a time when oil prices have fallen to their lowest in over a decade. This could be indicating that the continued UK economic growth is giving companies the confidence to raise prices, despite CPI having been around zero for the majority of 2015.
“The recent decline in sterling, which is down 8% against the Dollar, and is almost flat against the Euro versus the beginning of last year, may start to feed through into CPI. At best though, it seems likely to prevent it turning negative with deflationary pressures spreading across the globe, especially in emerging economies whose currencies have plummeted in some cases by 30% or more in the past year.
“Sterling’s recent sharp fall has been exasperated by the volatile start to the year, feeding concerns over the ‘Brexit’ risk. We expect it to start to stabilise and strengthen in the months ahead, particularly against the Dollar as further rate hikes from the Fed become less and less likely.”