Sterling drops off in reaction to inflation holding steady

Brexit deal still remains focus as Prime Minister tries to gather support.

Article updated: 14 November 2018 12:00pm Author: Helal Miah

The latest set of inflation data out of the UK for October will be welcomed by many, including policymakers at the Bank of England, as the rate of price rises stayed put at 2.4% YoY compared to expectations that it could have headed higher to 2.5%. The month on month figure also held steady at 0.1%.

The rise in energy prices and costs in the transportation sector were offset by falling food and clothing prices. These results had a mild negative impact on sterling as it means that the MPC will feel less of a need to increase the pace of interest rate rises. This is good news and somewhat offsets yesterday’s jobs data that showed the rate of wage increases headed higher to 3.2%, the highest in several years.

Sterling reacted by losing a little value on the back of this release, however the market is more focused today on developments in Downing Street as the Prime Minister tries to gather support for the Brexit deal negotiated with Europe. Sterling has had a choppy few days but on the whole has been rising on optimism that a final deal can be agreed upon.

The stock market today is down more in sympathy with global stock market’s fear that an economic slowdown may be coming as oil prices had their biggest fall yesterday for some time, but the fact that inflationary pressures have not increased in the UK left the FTSE 100 to bounce off its session lows.

In the short term the currency and the stock market will be more focussed on Brexit than underlying economic fundamentals but the recent data releases suggests that the UK economy is ticking along relatively well given the circumstances. Nevertheless, should a no deal be achieved, this will change dramatically.


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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

Helal has spent time as an independent proprietary trader, trading the US equity futures market. He has also helped manage private client, institutional, retail and hedge funds. His qualifications include the Securities Institute Diploma and the Investment Management Certificate.

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