Unexpected UK inflation fall takes markets by surprise
There were more surprises for the markets today, as unexpected UK inflation data results from the Office for National Statistics (ONS) showed that the rate of inflation in the UK has dropped from 2.9 per cent in May to 2.6 per cent in June.
This is the first time the inflation rate has decreased since October 2016. Markets had expected the rate to remain the same or fall only very slightly.
Contributing factors included another fall in fuel prices, which dropped again in June for the fourth consecutive month. Looking at the bigger picture, inflation remains above the average increase in standard wages across the UK, at 1.8 per cent.
David Kerns, corporate development lead at currency specialist, Halo Financial, commented, “Today’s dip in inflation will be very much welcomed by the British cash strapped consumers, who have seen their living standards squeezed, as inflation climbs quicker than wages.” “Further proof in the pudding will be when we get the latest UK retail sales figures released this Thursday, providing diagnosis on how spending is holding up in light of the rising pressure on British household budgets. ”
In response to the results, the Pound has fallen to 1.12 against the Euro and has also dropped almost a cent against the US Dollar, hovering around 1.30 at the time of writing. David Kerns continues, “We also await comments from Bank of England Governor, Mark Carney, later today, which could also have an impact on Sterling strength, as we have seen in recent weeks.
The cooling UK inflation data takes the pressure off the Bank of England to raise rates in 2017 to curb inflation; so we may, therefore, see a more accommodative stance from policymakers in this period of uncertainty.” “Every political and economic announcement is having at least some effect on the Pound in the continually volatile currency markets, which are moving constantly, so businesses and individuals alike need to keep a close eye on the latest developments and their effects on exchange rates,” concludes Kerns.