GBP Rallies as UK Inflation Rises More Than Expected

Retail inflation jumps to 21-month high in May on surging food prices

The consumer price index (CPI) based inflation stood at 2.36 per cent in the previous month.

United Kingdom inflation beat forecasts to rise to 2.9% in August, after stalling at 2.6% in July, with record uplifts in clothing costs contributing to the increase, according to the Office for National Statistics.

The August inflation number is the highest since March 2017, when it was recorded at 3.89 per cent.

Among the CPI components, inflation of food and beverages accelerated to 1.96% in August 2017 from 0.43% in July 2017 mainly contributing to the increase in CPI inflation.

In fact the difference in outlook between the bank and investors is becoming pronounced - despite the Bank's repeated warnings about needing to raise rates sooner and faster than markets expect, markets are pricing in that they will stay at their current 0.25% level until the end of 2018, and not rise above 0.5% until 2021.

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According to the Office for National Statistics (ONS), clothing prices rose faster than a year ago, which coupled with a hike in the cost of petrol, pushed inflation higher.

In July, the inflation rate had shot up for the first time in three months, when it rose by 2.36 per cent. "Rates are a racing certainty to be left on hold at this week's meeting [on Thursday], but as ever the minutes will be closely scrutinised for clues as to committee members' latest thoughts".

The pound hit a one-year high against the dollar after official data showed United Kingdom inflation was higher than expected in August.

However, some economists warn that inflation is unlikely to remain so high for long, which may hamper the chances for an interest rate hike from the BoE in the near future.

TUC general secretary Frances O'Grady said: "The cost of living squeeze continues, with rising inflation outpacing wages".

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