James Knightley, Senior Economist at ING, notes that the UK inflation rose to 1% and pipeline price pressures are building, but the BoE is prepared to "look through" this situation and continues to focus on a relatively gloomy medium term growth outlook.
Key Quotes
“UK headline consumer price inflation rose a little more than the market expected in September. It came in at 1%YoY, the highest inflation rate since November 2014. This has been a fairly sharp turnaround – it was negative late last year and was just 0.6% only last month. Sterling’s weakness has been the main driver, having plunged 16% on a trade weighted basis since the EU referendum and is down 22% since last November. We have seen the effects of this most markedly in energy and clothing prices so far.
This trend will continue with sterling’s plunge significantly pushing up the price of imported products. Producer price inflation is running even faster at 1.2% while input prices are rising 7.2%. We look for headline consumer price inflation to push up to 3% next year.
Rising inflation and this week’s other UK data, which includes retail sales and employment numbers on the face of it don’t really support the idea of a rate cut at the November MPC meeting and financial markets are pricing in just a 6% chance of such a move. However, economists see a much higher probability, which reflects comments from the BoE suggesting that officials will “look through” temporary higher inflation. Moreover, they suggested that should the economic outlook remain as gloomy as they were predicting in August, they would likely cut rates again. We doubt that there will be any significant changes in the outlook for 2017 and 2018 and so think that the chances still narrowly favour further stimulus.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD looks at tariffs for further direction
AUD/USD reversed two daily upticks in a row and deflated below the 0.6300 support once again on Thursday in response to the firmer tone in the US Dollar and intense jitters around US tariffs.
EUR/USD meets initial support near 1.0820
EUR/USD lost ground for the second consecutive day, this time receding to the 1.0820 zone in line with further recovery in the Greenback and another pullback in German yields.
Gold now targets the $3,000 mark
Gold extended its rally on Thursday, hitting a fresh record past the $2,980 mark per troy ounce as escalating trade conflicts and mounting worries about global growth fueled intense safe-haven demand.
CZ denies rumors of seeking pardon from Trump
Binance founder Changpeng Zhao (CZ) denied reports on Thursday that claimed he is seeking an official pardon from President Donald Trump's administration.
Brexit revisited: Why closer UK-EU ties won’t lessen Britain’s squeezed public finances
The UK government desperately needs higher economic growth as it grapples with spending cuts and potential tax rises later this year. A reset of UK-EU economic ties would help, and sweeping changes are becoming more likely.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.