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UK Inflation surges

  • Posted by Shyam Gokani in Uncategorised
  • October 18, 2016
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British inflation recorded its sharpest jump in more than two years in September, even without any direct evidence of the weaker pound pushing up prices, official figures showed this morning.

Annual consumer price inflation rose to 1.0 percent from 0.6 percent in August, the highest level since November 2014 and the biggest jump from one month to the next since June 2014, the Office for National Statistics said.

Economists polled had expected a reading of 0.9 percent, and today’s figure was at the top end of the range of forecasts. They are likely to view September’s rise as only the start of a much broader increase, fuelled by the pound’s near 20 percent plunge since June’s vote to leave the European Union.

As the cheaper pound pushes the price of imported goods higher in the UK, the global recovery in commodity and oil prices is also expected to add to the inflationary pressures moving forward. The rise in the UK’s inflationary pressures could interfere with the Bank of England’s (BoE) unorthodox plans; preventing the BoE from a further rate cut in the mid-term, or even bring the possibility of a premature rate rise on the table. Hence, the likelihood of any pound depreciation below the 1.20 level against the US dollar is declining.

British inflation has been below the Bank of England’s 2 percent target for nearly three years and last year it was zero, the lowest since comparable records began in 1950.

BoE Governor Mark Carney last week said the central bank could tolerate “a bit” of an overshoot against its inflation target, to help accommodate economic growth and employment.

The ECB expectations are dovish, as investors are craving for an expansion of the Quantitative Easing programme beyond March 2017. Any concrete action at Thursday’s meeting is quite unlikely, yet many see December as a good candidate for a concrete step. Therefore, the ECB’s accompanying statement will again be in focus.

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