Will Inflation Data break 3%?
This morning at 9.30 we will see the release of UK inflation data. We have seen a rapid rise of late, with the last data release showing an increase to 2.9%. If there is a rise above 3% there is the high probability of an interest hike in the UK. Mark Carney the governor of the Bank of England (BOE) has indicated there is the strong possibility of a rate hike on November 2nd and if inflation does go above 3% it could force the BOE’s hand.
I am dubious on the justification of a rate hike. Inflation is only considered healthy if average wage growth is growing at a similar pace. We actually saw a decline when the last results were released, a fall to 2.1%. Unemployment has also been lauded as the best levels since the 70’s, but they have only recently had the inclusion of zero hour contacts.
Today’s inflation data does have the power to move markets, if there is a rise in inflation I would expect Sterling to strengthen based on the higher probability of a rate hike. We saw GBP/EUR move to 1.14 following Carney’s hints towards a hike.
Brexit talks have hit a brick wall of late. Theresa May has taken action and flew to Brussels on Monday evening for talks with EU leaders Jean-Claude Juncker and Michael Barnier in an attempt to speed up negotiations. The talks have been reported to have been constructive and friendly although we have seen little movement on the markets. This does bode well, but we need further clarity on key issues in order to see substantial gains for the pound.
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