Jump in UK Inflation Lifts Sterling

Amid rising oil and food prices, Britain’s headline consumer price index (CPI) again came in above the Bank of England’s (BoE) acceptable range last month, surging to 3.7%, reports Caxton FX. The higher-than-expected figure has given sterling a boost across the board, moving through the US$1.60 level against the US dollar for the first time in nearly two months.

Duncan Higgins, currency market analyst, Caxton FX, said: “There has been growing speculation that the number would exceed forecasts. However, the amount by which it has overshot has come as quite a surprise and sterling has been given a boost higher across the board.

“Worryingly, this number does not yet take note of the rise in VAT, so it’s little surprise that we’re seeing forecasts for the next BoE rate rise being brought forward. It’s tricky to see how inflation will fall back into range this year without action from the Bank. The earliest forecasts predicted the next rate rise would be in September this year, but there will be growing pressure for an earlier move – despite certain policymakers continuing to play down the need to do so,” he added.

December’s figure marks the 12th consecutive month that inflation has run outside of the BoE’s 1%-3% range. It is also a far higher number than the consensus market expectation which forecast an unchanged rate of just 3.3%. The sharp rise in the rate comes from a number of factors including higher utility, fuel, and clothing costs.


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