BRITISH Pound spikes as inflation hits six-month high of 2.7%

Sterling spikes as inflation hits six-month high of 2.7%

Eight-week high against US dollar

Sterling spikes as inflation beats expectations to hit six-month high of 2.7%
Sterling spikes as inflation beats expectations to hit six-month high of 2.7%

According to the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose to its highest level since February, driven by increasing prices for transport services, clothing and recreational and cultural goods.

However, these rises were partially offset by a fall in prices for furniture and household goods and telecommunications.

Mike Hardie, head of inflation at the ONS, said: “Consumers paid more for theatre shows, sea fares and new season autumn clothing last month.

“However, mobile phone charges, and furniture and household goods had a downward effect on inflation.”

On the news, sterling spiked to an eight-week high against the US dollar, up 0.45% to $1.3206, while the pound rose 0.32% against the euro to €1.1275, as pressure could now be placed on the Bank of England to raise interest rates faster than expected.

The BoE’s Monetary Policy Committee unanimously voted to increase rates by 25 basis points to 0.75% in August, in response to inflation remaining above target for the forecast period.

Markets are currently pricing in a 55% chance of a rate hike in May 2019 and just a 33% chance in both February and March.

Ben Brettell, senior economist at Hargreaves Lansdown, commented: “The numbers reinforce expectations that policymakers will gently lift interest rates over the next couple of years.

“The figures will not come as welcome news to the Bank of England though – they will be desperate to leave policy unchanged until we get some clarity over Brexit, and will not want to be forced into a rate rise by accelerating prices.

“A rise to 1% is tentatively priced in for around May next year, though clearly a disorderly Brexit would force a dramatic rethink.”

Dean Turner, economist at UBS Wealth Management, said: “Brexit concerns aside, today’s data will provide further ammunition to the hawks on the MPC.

“This backdrop of a moderately hawkish MPC reinforces our view that any positive news on Brexit is likely to be met with the pound unwinding some of its recent weakness.”

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