Whatever, if any, rise in pay growth takes place in August, it’s clear that inflation is outstripping wages figures published Tuesday showed that the headline consumer price inflation rate spiked to 2.9 percent in the year to August.
United Kingdom inflation surged to 2.9%, more than forecast and way above the Bank of England’s 2% target, as households paid more for fuel and clothing. It was at 2.9% in August, near its highest in five years.
Today’s decision comes amidst bullish inflation and unemployment data that would ordinarily trigger a rate rise.
The pound was battered, falling around 15 percent, after last year’s surprise Brexit vote, a move that stoked inflation by making imports more expensive and which the trading community thinks will diminish the country’s economic prospects. The ONS said that the increase may be in part down to a delayed response to the fall in the pound during previous year, with supply contracts with overseas producers now possibly renewed on different terms.
He could change that vote this month, while Ramsden seems fairly certain to vote with the status quo, making a 6-3 vote likely.
Andrew Wishart, economist at Capital Economics, says that while speculation over a rate hike this year looks premature, it’s likely that the Bank of England will begin to normalise policy in the first half of this year. Inflation is now well above the bank’s target of 2 percent, worsening the dilemma for rate-setters who are anxious about raising rates amid the economic uncertainty. Is now the time for the governor to put his money where his mouth is and actually vote for a rate hike?
Ahead of the latest Bank of England Monetary Policy Committee meeting on Thursday, the latest Office for National Statistics numbers for United Kingdom inflation should attract attention on Tuesday, although undoubtedly the launch of Apple Inc’s (NASDAQ:AAPL) will see the most interest.
Low inflation for longer, either due to Euro strength or subdued inflationary pressures in the bloc, would support the bank’s cautious stance on things like interest rates.
“Ultimately what the wage data did was to shift the focus to tomorrow’s BoE meeting and really, the big question is how concerned is the central bank about a 2.9 percent inflation rate”, said CMC chief markets analyst Michael Hewson.
The Pound Euro exchange rate has trended relatively flatly near its highest levels in a month for most of the week, thanks to market anticipation for the upcoming Bank of England (BoE) policy decision. Input prices came rose to a rate of 7.6% y/y, above the median forecast for 7.2% y/y and accelerating from July’s 6.2% y/y pace. The figure peaked at 19.9 percent in January.