UK Inflation Joint Highest In Over 5 Years

However, the MPC minutes also tempered expectations of a possible interest rate rise by saying it would depend not only on inflation rising further but also the economy maintaining its recent strength.

"On balance we continue to see the pragmatists holding sway", said Sam Hill, senior United Kingdom economist at RBC Capital Markets, of the central bank rate-setters.

The Bank of England is expected to leave interest rates unchanged later today despite mounting fears over a renewed surge in inflation. That means rates staying at a record-low 0.25% and the bank's QE programme capped at a maximum of £435 billion.

The sharp fall in the value of the pound following the UK's vote to leave the European Union previous year has raised the cost of imports and pushed up the rate of inflation.

"Furthermore, the case for an interest rate hike anytime soon now looks pretty flimsy overall to us although sterling's recent overall slippage may well be of some concern to the Bank".

Since the Brexit referendum, despite some softening numbers on the housing front, the weaker pound has led to higher than expected inflation in the United Kingdom.

Sterling fell to a nine-month low on a trade-weighted basis on August 29, though it has since recouped these losses and is little changed from its level at the time of the BoE's last rate decision on August 3.

Clothing and footwear was one of four sub-sectors of the ONS's basket of goods that saw price growth reach a four-year high last month.

The news sent the value of sterling up 0.67 per cent on the day to $1.3248, the highest since September 2016, as traders bet on an earlier interest rate rise from the Bank of England.

"Inflation has been steadily rising in the United Kingdom and the latest forecast suggests this trend is continuing", analysts from retail broker FxPro said in a morning note.

The other is the following, couched in tortuously cautious central banker's language: "Monetary policy could need to be tightened by a somewhat greater extend over the forecast period than current market expectations... some withdrawal of monetary stimulus is likely to be appropriate over the coming months".

United Kingdom inflation surged to 2.9%, more than forecast and way above the Bank of England's 2% target, as households paid more for fuel and clothing. Although underlying pay growth has shown some signs of recovery, growth remains moderate, the bank said.

Sterling is set to remain volatile due to Brexit uncertainty. "Policymakers are already split in their decision and now the market would expect a more hawkish tone (on Thursday)", said Naeem Aslam, chief market analyst with broker Think Markets in London. "This may provide a backstop to any meaningful GBP-selling theme in markets", With the dollar also plagued by United States and global politics, we look for GBP/$ to remain anchored around the 1.30 level in the near-term.

  • Zachary Reyes