020 7898 0500Sterling strengthened further yesterday as the BoE’s preferred measure of inflation was released. The consumer price index held firm at 2.3%, comfortably above the BoE’s 2% target. Markets had priced in a 0.1% decrease to 2.2%.
Inflation has been pushing higher since the EU referendum in June 2016, which caused the pound to drop by as much as 20%, increasing the costs of imports into the UK.
Food prices are a major contributor to the rise in inflation. In March they were up by 1.2% over the same period a year ago, which represents the largest annual increase in three years. Bloomberg said yesterday that retailers were coming up with more creative ways of passing on the Brexit-induced cost increases to consumers. Instead of boosting the price of staple goods such as milk and eggs, less frequently purchased goods, including light bulbs, are becoming more expensive. Indeed, from October to March their price rose by 19%!
We have another big day ahead in terms of economic data and news. BoE Governor Mark Carney is due to speak at the International FinTech Conference in London. This could cause some sterling movement.
In addition, UK employment data will be released this morning. Markets are expecting a decline in the number of people claiming unemployment-related benefits. However, arguably more important is the expectation that the average earnings figures will fall below the rate of inflation, which poses a concern.
