020 7898 0500The UK recorded its largest increase in inflation in two years yesterday, The Consumer Price Index (CPI) posted 1% year on year, with 0.6% for August. As we head closer to the Bank of England’s magic 2% inflation target, markets are moving their focus away from the possibility of an interest rate cut in the UK in the near term.
Recent sterling weakness has pushed up prices, as the relative cost of imports increased. The classic example of this was the Unilever and Tesco saga, with Unilever blaming Brexit and the resultant weak pound in wanting to push their prices up by 10%. However, the Office for National Statistics (ONS) waded in by stating that the uptick in inflation may not be the result in the post Brexit slump in sterling. This may have stopped the pound in its track, as it broke above 1.11 against the Euro and 1.23 versus the US Dollar.
Today proves an interesting day, with employment data set to dominate proceedings in the UK. However, the recent discounting of data in favour of sentiment-driven price action may continue, as the market focuses on any further developments from Prime Minister Theresa May, Chancellor Philip Hammond, and the UK government’s next Brexit based-move.
