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Market Update

The British pound rebounded this morning but was off the highs touched yesterday, after data showed British inflation hit a more than nine-year high last month, fuelling expectations the Bank of England could look to hike rates sooner than previously expected.

CPI in Britain rose by 3.2% on a year-on-year basis last month, the biggest monthly jump in the annual rate in at least 24 years, largely due to a one-off boost reflecting the “Eat Out to Help Out” scheme that pushed down restaurant meal prices last year.

The BoE expects inflation to rise sharply this year and hit a peak of 4%. The strong reading for inflation could reinforce expectations that the BoE is set to tighten monetary policy quicker than the European Central Bank or the U.S. Federal Reserve.

With inflation running hot and wages on the rise, the BoE looks quite likely to be one of the first major central banks to hike rates next year according to analysts.

A poll found out that investors believed the BoE will raise borrowing costs by the end of 2022.

Sterling has gained support this week by labour market data showing the total number of pay rolled employees in Britain has climbed to pre-pandemic levels.

It extended its rise after the dollar dipped as data showed on Tuesday underlying U.S. consumer prices increased at their slowest pace in six months in August.

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