UK Inflation has come out hotter than expected, climbing to 3.8% against expectations of 3.7%. Services inflation climbed to 5% which will be of a concern to The Bank of England, with airfares representing a 30.2% month-on-month increase which was partly due to summer holiday travel. Food prices also climbed to 4.9%, again higher than the projected 4.7% which will be of real concern, due to food pricing influencing household expenditure.
Of more concern is the fact that UK inflation is due to peak at 4% which is double the Bank of England’s target and will now put real pressure on their next rate decision. In normal circumstances, higher inflation would allow for higher interest rates to eventually bring those prices down. However, with unemployment becoming an issue alongside wage struggles, it provides a significant problem moving forward.
Overnight, The Reserve Bank of New Zealand cut their interest rates by 25 basis points, however the New Zealand Dollar has suffered more than usual as two members went against the grain and voted for a 50-basis point cut. It represented the first split in the central bank’s history and signals a clear belief that much more work is needed to get interest rates at a level required to support the economy.
Prior to the event, markets were anticipating this cut to be the last cut of 2025, however since the vote split the New Zealand Dollar has fallen with pricing for further rate cuts now increasing.
GBP/EUR 1.1584 GBP/USD 1.3487 GBP/AED 4.9549
GBP/AUD 2.0974 GBP/CHF 1.0897 GBP/CAD 1.8725
GBP/NZD 2.3162 EUR/USD 1.1627 GBP/ZAR 23.8835