Inflation uptick prompts rise in pound

Added 16th August 2016

Inflation in the United Kingdom ticked up to 0.6% in the year to July from 0.5% for June according to the Office for National Statistics, prompting a rise in the pound.

Inflation uptick prompts rise in pound

Sterling climbed on Tuesday morning by 0.7% to sit at $1.297. It remains some way beneath the approximate $1.48 level it sat at before the EU referendum result came through however.

UK inflation has been very gradually ticking up from zero since September last year and now sits at its highest for two years. It remains a significant way off the Bank of England’s 2% target however.

The data released today does not reflect any impact from the interest rate cut and stimulus measures announced by Mark Carney at the start of August as it only covers July.

The ONS said the main contributors to the inflation increase were rising prices for motor fuels, alcoholic beverages and accommodation services, and a smaller fall in food prices than a year ago.

The reaction of UK equities was muted, with the FTSE 100 slipping 0.3% to 6919 and the FTSE 250 a fractional 0.09% up at 17,946.

Don Smith, chief investment officer at Brown Shipley sees the inflation rise as a notable development.  “Today’s UK inflation figures are noteworthy in that they are one of the first post-Brexit economic data releases, but for many that is where their significance ends with the Bank of England already dismissing their implications as a short term blip,” he said.

“The big issue is rather the impact of sterling’s weakness on import prices at a ‘high street’ level, Smith continued. “Fortunately, the effects of currency movement can take a while to filter through the system so we weren’t expecting an immediate jump in inflation today, despite the sizable plunge in sterling we’ve experienced since the referendum.”

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About Author

Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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