020 7898 0500Sterling started the day on the front foot as the inflation figures were announced. After last week’s quarterly inflation report it was already expected that the reading would push higher but the jump to 2.7% surpassed expectations.
Initially, sterling strengthened because under normal market conditions higher inflation would point to a rate hike. But we don’t work in normal market conditions.
Once markets remembered we might find the economy at record low levels for some time it soon pulled back. In addition, the other form of inflation (retail price index) pushed to 3.5%. This is significant as a lot of price hikes are linked to this reading – for example, season travel tickets increase by RPI plus 1%. This number is historically higher than the headline inflation number.
In the meantime, the UK general election debate continues with the release of Labour’s manifesto which includes a plan to raise £48.6 billion in tax. Interestingly, they will refuse to leave the EU with no deal in place.
Today’s employment data has even more emphasis on it following the higher rate of inflation. The key number under the microscope will be average earnings which tracks salary inflation over the past three months. This is expected to nudge higher to 2.4% but the gap between inflation and average earnings will widen.
