The pound regained its footing on Wednesday morning after consumer price data showed UK inflation continues to soar. Figures released by the Office for National Statistics (ONS) revealed that the Consumer Price Index jumped sharply to 2.5% in June from 2.1% in May – exceeding economists’ forecasts of a 2.2% rise and well above the Bank of England’s (BoE) 2% target.
The figures increase pressure on the BoE to hike the UK’s interest rate to stop the economy from expanding at an unsustainable rate. So far, the BoE has refrained from raising interest rates, despite mounting pressure. The central bank argues that a surge in inflation is being driven by a boom following the reopening of the economy that will diminish over the next 12 months.
The pound rose to 1.388 against the dollar in response to the inflation data.
There are currently more job vacancies than before the pandemic, official figures from the ONS showed this morning. The number of open vacancies between April to June was 77,500 above its pre-pandemic level in January to March last year, as the rate of unemployment recedes after a sustained period of job losses. Unemployment fell slightly between March and May, according to the ONS, as employment and the number of hours worked experienced an uptick.
The UK’s unemployment rate currently sits at 4.8%, almost 1% higher than the pre-pandemic rate, but slightly lower than the previous quarter.
Dollar falls on Fed comments
The dollar did not take kindly to Federal Reserve Chair Jerome Powell’s testimony before Congress on Wednesday. In remarks prepared for US lawmakers, Mr Powell said the economy was “still a way off” levels the Fed wanted to see before tapering its monetary support. His comments came hot on the heels of data on Tuesday showing US inflation hit its highest level in over 13 years in June – a development that gave the dollar a leg up and shone the spotlight on when central banks around the world will start tapering pandemic-era stimulus.
US producer prices gathered momentum last month, triggering the biggest annual increase in over 10 years, which suggests inflation could remain high. The report from the Labor Department on Wednesday showed producer prices – excluding the volatile food, energy, and trade services components – rose 0.5%.
A slew of economic indicators are slated for release from the US economy today, including: the Philadelphia Fed Manufacturing Survey and Initial Jobless Claims for the week ended 9 July. Fed Chair Jerome Powell will be testifying before Congress for a second consecutive day, providing a broad overview of the economy and monetary policy.