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UK inflation came in softer than expected on Wednesday, but with markets anticipating a surge in price rises over coming months the Bank of England remains set to raise interest rates and analysts say the British Pound should therefore remain supported.
UK wholesale gas for October delivery has surged to a fresh high on Tuesday.
UK natural gas wholesale prices surged in the region of 20% midweek taking them to a fresh record high after a large fire at Britain’s main electricity subsea cable with France reduced imports.
The ONS says the rise in UK CPI inflation in the 12 months to August 21 constitutes the "largest ever recorded increase" since the current series began in 1997.
Don't be deceived by the dip in inflation, it's going to heat up say economists.
UK inflation came in below market expectations at 2.0% year-on-year in July, a miss that lead to some weakness in the British Pound although investors were quick to buy the dip.
The British Pound was bid in mid-week trade following the release of UK inflation data for June which came in hotter than expected, prompting expectations that a 2022 Bank of England interest rate rise was increasingly likely.
Chief Economist of the Bank of England Andy Haldane has warned the UK economy is starting to overheat and unless quantitative easing is withdrawn soon uncomfortably high levels of inflation will become embedded.
The British Pound advanced against the Euro, Dollar and other major currencies mid-week following the release of hotter-than-expected UK inflation numbers, but the key focus for FX markets remains tonight's Federal Reserve event which could trigger more durable moves.
UK inflation rose by a greater margin than analysts had been expecting, but the rise was by no means surprising enough to warrant a major reconsideration of how the Bank of England might shift its views on interest rates.
A stack of evidence is piling up that the global economy is heading for a spike in inflation say analysts, as logistical challenges and the rising cost of raw materials converge.
UK inflation in February was a great deal softer than analysts were expecting, but the consensus amongst economists remains that a steady rise in prices lies ahead.
UK Inflation is depressed, but it will start climbing again over coming weeks and months and in five years from now could be as high as 2.4% according to economists.
Inflation is back on the radar for investors who worry that the response by governments and central banks to the covid-19 crisis is storing up higher prices in coming months and years.
UK inflation rose again in December and surpassed the expectations of market participants, but the rises are not yet significant enough to suggest there is any reason for the Bank of England to shift course on interest rates or other monetary policy settings.
The Consumer Prices Index (CPI) measure of inflation in the UK was 0.7% higher year-on-year in October 2020, up from 0.5% in September and a beat on consensus market expectations for a reading of 0.60%.
The closing of the Eat out to Help out scheme at the end of August resulted in a jump in monthly inflation in September, but price rises are still well below trend and suggest the Bank of England has scope to ease monetary policy further.
Falling demand for international travel and the Eat Out to Help Out scheme meant prices in the UK fell 0.4% between July and August, according to the ONS.
UK inflation for July came in hotter than expected, a development that will likely ensure the Bank of England maintains a cautious approach to cutting interest rates and boosting quantitative easing which is in turn supportive of Sterling.
Following the release of inflation data there was a tick higher in the value of Sterling which had been recover the ground it lost over the course of the first two days of this week.
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