The Office for National Statistics (ONS) revealed a cooling in the latest Consumer Price Index (CPI) as inflation crept up to 2.6% for June, well below the 2.9% jump expected.
In my opinion there is a lot of importance on this data release for two reasons. Number one, has inflation now cooled for the time being in the UK and provided some breathing space for UK consumers following Brexit? Secondly, how will the Bank of England choose to act regarding future monetary policy?
A weaker Pound since the Brexit has meant that importers are paying more for their goods and then transferring these costs to their consumers, the British public. However, the cooling in today’s Consumer Price Index data was mainly put down to the drop in fuel prices following a sharp slip in the price of oil in June. Fuel prices have been steadily declining for 4 months according to reports. One thing that is worth noting is that if the price of oil starts to increase I wouldn’t be surprised to see inflation start to rocket in the UK.
A major concern for the Bank of England is the gap that is appearing between the rate of wage growth and the rate of inflation. Pressure had been mounting of late on the Bank of England to raise interest rates in an effort to close the gap.
I personally think that this was the reason why the Pound lost value off the back of this data. Rumours surrounding interest rates being raised normally help to strengthen the currency in question which is why I think that the Pound had been fairly buoyant of late.
Mark Carney, Governor of the Bank of England is due to speak later on today. Recently, he has been fairly open in his views on raising interest rates in the UK. I wouldn’t be surprised if the Pound lost further ground if his tone in today’s speech is particularly hawkish.