Sterling edges up after UK inflation jump

In this file photo taken on October 05, 2017 British one pound sterling coins are arranged for a photograph in central London. — AFP pic
In this file photo taken on October 05, 2017 British one pound sterling coins are arranged for a photograph in central London. — AFP pic

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LONDON, Sept 15 — Sterling edged up today, but was off the multiple-week high touched the previous day, after data showed British inflation hit a more than nine-year high last month, fuelling expectations the Bank of England could act sooner to hike rates.

Consumer prices in Britain rose by 3.2 per cent in annual terms last month, the biggest monthly jump in the annual rate in at least 24 years, largely due to a one-off boost reflecting the “Eat Out to Help Out” scheme that pushed down restaurant meal prices last year.

The BoE expects inflation to rise sharply this year and hit a peak of 4 per cent. The strong reading for inflation could reinforce expectations that the BoE is set to tighten monetary policy quicker than the European Central Bank or the US Federal Reserve.

“With inflation running hot and wages on the rise, the Bank looks quite likely to be one of the first major central banks to hike rates next year,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

A poll from Reuters found out that investors believed the BoE will raise borrowing costs by the end of 2022.

But the latest numbers brought forward these expectations to mid-2022, said Stuart Cole, head macroeconomist at Equiti Capital. This “explains the support sterling is seeing at the moment”.

Even taking into account the “Eat Out to Help Out” scheme, “underlying pressures remain strong”, with inflation considerably above the BoE’s 2 per cent mandated target, Cole said.

Sterling rose 0.2 per cent versus the dollar at US$1.3831 (RM5.75) by 0825, but it was off the 5-week high of US$1.39.13 against the dollar touched yesterday.

Versus the euro, sterling rose 0.1 per cent to 85.42 pence, off the 3-week high of the previous session.

Sterling has gained support this week by labour market data showing the total number of payrolled employees in Britain has climbed to pre-pandemic levels.

It extended its rise after the dollar dipped as data showed yesterday underlying US consumer prices increased at their slowest pace in six months in August. — Reuters

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