Expectations remain for a rate rise in August
Sterling under pressure after surprise inflation figures
- The Office for National Statistics has released the latest UK inflation figures, revealing an unchanged CPI year-on-year measure of 2.4%
- The British pound drifted lower in response to the news, falling to $1.3010 against the US dollar
- The lowered chance of an immediate rise in interest rates would be beneficial for investors, says analyst
The latest monthly inflation figures surprised the market today as they showed the Consumer Prices Index (CPI) year-on-year measure holding steady at 2.4% in June. The Office for National Statistics (ONS) said rising prices for motor fuels and domestic energy were offset by falls in the cost of products in the clothing, games, toys and hobbies sectors.
Sterling reacted with a sharp fall to $1.3010 against the dollar, its lowest level so far this year, while the FTSE 100 rose 14 points to 7672. The modest rise indicates that the market still thinks it likely that the Bank of England’s Monetary Policy Committee will go ahead with a rise in rates at its next meeting in August. However, the chances have reduced with these figures and yesterday’s labour market data which showed a drop in weekly earnings growth in April from 2.6% to 2.5%.
While a return to more normal levels of interest rates over the longer term would be a good thing for the economy, a lower chance of an immediate rise would be beneficial for investors. For companies coping with rising costs and the uncertainties around Brexit a rise in interest rates could also lead to an increase in borrowing costs, so if that prospect has receded then it is a positive for investors.
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