Inflation Reports Rule The Day

18 October, 2017

Simon Eastman

UK Inflation Reports

Yesterday was probably the most key release for the UK in the shape of the monthly inflation report. Its the Bank of England’s job to keep this level steady around 2 percent and with the fresh multi-year high it hit yesterday of 3 percent, the BoE is more likely to act to try and control it.

The pound has benefited recently from increased speculation that with the inflation level soaring, we may see an interest rate hike at one of the next policy-setting meetings in November or February next year. The pound initially made small gains across the board as a rate hike for November was looking more likely, but it didn’t last long.

Carney Delivers Inflation Report

Mark Carney the BoE chief, later gave testimony to the Treasury Select Committee where he was less convinced that we would see a rate rise as soon as next month. He told MP’s that “inflation rising potentially above the 3% level in the coming months is something we have anticipated“.

This was put down to the drop in sterling since the referendum but he also added they expect inflation to peak this month or next, quote noted from a BBC article, he thought it would be “more likely than not that I would be writing on behalf of the Monetary Policy Committee (MPC) a letter to the chancellor.”

To Raise Or Not To Raise, That Is The Question

As a result of Carney’s comments, the pound spent the rest of the day in decline, losing across the board. Against both the euro and the US dollar it dropped a cent, making it that bit more expensive to send money overseas. Will the doves side with caution and see if inflation peaks before deciding on an interest rate move next year?

It seems the markets think so, having previously priced in an 85 percent chance of a move next month, they seem to have dampened those thoughts somewhat. We have key unemployment data today plus retail sales tomorrow which will give further food for thought.

Strong Day For Data

Today is another strong day for UK data releases with UK average earnings and unemployment figures due at 9.30am. We also have an array of central banker speeches, kicking off first thing with a speech from ECB president Mario Draghi. After lunch, we have further speeches from ECB members Praet and Coeure and FOMC members Kaplan and Dudley.

Inflation rising puts pressure on UK households, so markets will be watching the average earnings data eagerly to get more clues as to what the MPC might do. Inflation didn’t work out well for those holding fire to secure their currency so anyone still left looking to send money overseas in the coming days or weeks might be prudent to take stock and jump in before sterling loses yet more ground.

Inflation Reports
Inflation Reports Rule The Day