Annualised CPI rose to 2.7% last month, the highest in over 3 years, in what will be unwelcome news to Bank of England governor Mark Carney.
The MPC’s core mandate is focused on inflation, but the drop in real earnings and squeeze on UK households will make the committee reluctant to raise rates, despite the upward trajectory of inflation data. At the May meeting, Carney suggested that much of this rise is down to sterling weakness, yet short of re-defining the MPC’s mandate, interest rate hikes are surely set for earlier than the 2019 date currently priced into fixed income markets. With that said, traders and investors are likely to hold off on major position-taking until a complete picture forms of the household squeeze – this will be provided by a suite of UK data that builds on today’s inflation print and includes labour and earnings figures as well as Thursday’s retail sales.
Sterling hits five-week low against resurgent euro
Richard de Meo quoted in Reuters