Pause in sterling sales ahead of inflation data

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In afternoon London deals, the pound climbed as high as $1.2738 following official data showing British Consumer Price Index inflation spiked to a near four-year peak of 2.9 percent in June. Economists had expected inflation to hold steady at 2.7 per cent.

But the pound recovered some of the losses it suffered in the wake of last week's general election, as rising inflation signals the Bank of England will not raise interest rates.

In response to the latest figures, the Pound dropped back, losing earlier gains in London trading on hopes of a softer Brexit after last week's inconclusive United Kingdom election result.

At first, retailers did what they could to absorb price rises themselves, and they were helped in most cases by having hedging arrangements in place.

Volatility is also likely in response to the latest United Kingdom retail sales figures, which are expected to show a marked slowdown in spending.

Pause in sterling sales ahead of inflation data
Pause in sterling sales ahead of inflation data

Belt-tightening was in evidence across the board, Visa said, with falls in food, clothing, transport and household goods. There was also a big increase in sales of supermarkets' cheaper, own-label ranges. The euro has also been buoyed by the strong majority expected for the party of French President Emmanuel Macron after the first round of parliamentary elections yesterday.

Britain is already in the grip of the longest period of falling real pay in more than two centuries, according to the Resolution think-tank.

"Although inflation is now running well in excess of then Bank of England's 2% target rate, today's release is unlikely to sway the hand of the Monetary Policy Committee members to consider raising interest rates now at such a delicate time".

The pound fell against all its Group-of-10 peers on the prospect of an unstable coalition government heading into Brexit talks with the European Union in a week's time.

While the shift from a perceived "hard" to a "softer" Brexit should ideally support the pound, Jones said he predicts the pound to "continue to trend lower as an uncertain domestic backdrop will likely deter investment and outweigh soft Brexit-related buying".

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