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Pound rallies following UK inflation data announcement

Pound rallies following UK inflation data announcement

The irony is enough to make an economist wince. The Pound, whose slump following the Brexit vote is blamed for the rise in inflation, responded to today’s news – by rallying. Comments from David Lamb, head of dealing at FEXCO Corporate Payments, comments.

The weak Pound is widely seen as the prime suspect behind Britain’s inflationary fears. For it to rise on today’s CPI increase is a bit like the criminal showing up to help in the manhunt. However inflation remains modest by historical standards, and with the ONS data showing that core inflation slipped from 1.45 percent to 1.3 percent in July, the full inflationary effect of Sterling’s weakness has clearly yet to be felt. Most marketwatchers predict that more expensive imports will drive up prices steadily this year.

But with CPI so far adrift of the Bank of England’s two percent inflation target, no-one expects rising inflation to prompt the Bank to reassess monetary policy any time soon. With UK interest rates near zero and the QE money presses rolling at full speed, Sterling’s appeal to foreign investors remains minimal. As a result, the prospects for the Pound in the medium-term are modest at best. It may have rallied from Monday’s lows, but this bounce is likely to be short-lived.”

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