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You are here: Home / British Sterling / UK inflation above Bank of England’s 2% target

UK inflation above Bank of England’s 2% target

March 21, 2017 by Rob Lloyd

UK inflation above Bank of England’s 2% target

bank of englandWith the UK now preparing for its EU-exit next Wednesday, the latest inflationary figures provide the latest twist in the Brexit drama. Core inflation came in at 2.3%, .3% above the Bank of England’s target which begs the question, will Mark Carney have to bite the bullet on an interest rate hike?

This will shape today’s speech from the Governor, who has up to now, insisted that a rate hike may become a possibility if inflation spins out of control.

In all honesty, data today provides the proof needed for the BoE to act in some form, and GBP investors will be placing their bets this morning in light of the latest inflationary trend.

Mark Carney is in the midst of his latest speech and the consequent Press Conference could provide some movements for Pound Sterling exchange rates.

Higher inflation bad for the UK economy

A weaker Pound appears to be the main driver for higher UK inflation. As a net importer, UK businesses are having to hike consumer prices to maintain profit levels. The concern is that slower or stagnant wage growth may become an issue for the UK, which in turn will dampen consumer spending habits leading to a slower economy.

An interest rate hike in this respect could do more harm than good, leading to higher borrowing costs and further dampening consumer spending habits. The Bank of England may need to adopt further measures to tackle higher inflation without affecting consumer spending.

GBP investors are looking to make a profit and are not considering the longer term implications of higher inflation and slower wage growth, in this respect, I would expect to see GBP/EUR and GBP/USD to make gains during today’s trading session.

Filed Under: British Sterling

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About Rob Lloyd

Robert brings with him a wealth of knowledge on what is impacting exchange rates, especially around the subject of the EU Referendum and the implications for Sterling and Euro exchange rates.

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