020 7898 0500Sterling weakened across the board yesterday as the market was disappointed with the headline inflation figure. The annual rate of UK CPI inflation in July held at 2.6% below the forecasted figure of 2.7%. In addition, the core figure (which excludes food and energy) was also unchanged at 2.4%. This has ultimately dampened any hope of an interest hike in the near future which became a possibility when the bank voted 5-3 a few months ago.
Since then, the BoE’s quarterly inflation report and dovish rhetoric has cooled expectations further; now that inflation hasn’t picked up as forecasted we have seen expectations of a rate hike slide further. In addition, the Retail Price Index was also released which gained more headlines as it relates to next year’s hike in train fares.
Another key economic reading is set for release today in the form of the labour data. Employment numbers will be watched closely, but the average earnings will be the figure everyone is focused on. If the differential between salary inflation and headline inflation continues to widen, it will further reduce the probability of a hike as the effect on the consumer could be detrimental. This could weaken sterling further.
