British inflation rate rises to 4-year high of 2.9 pct

   VOLATILE The pound to euro exchange rate's future is uncertain

GETTY VOLATILE The pound to euro exchange rate's future is uncertain

CPI inflation rose from 2.7 percent in April, above the 2 percent target that the central bank, Bank of England (BOE), aims for and is now at its highest level in four years, showed the figures.

The pound advanced and gilts fell as inflation in the United Kingdom accelerated to the fastest in four years.

Other rich countries around the world are also struggling with the phenomenon of low unemployment but weak wages.

May is still trying to strike a deal with a small Northern Irish party that will give her enough votes in parliament to allow her government to pass legislation, after losing her majority in a botched national election last week.

The pound traded 0.3 per cent higher on Tuesday at US$1.2696 as of 9:51am in London.

"Rising prices are hammering their pay packets again". "The public sector pay cap must go".

Industry consensus shows many believe inflation could hit 3% or more before the Bank of England (BoE) feels compelled to act and with only one Monetary Policy Committee (MPC) member, Kristin Forbes, in favour of a rate rise at the April meeting we may be in for a long wait.

"This spike in inflation will exert further downward pressure on real household disposable income, at a time when wage growth remains modest, and in turn squeeze consumer spending". The median forecast of economists in a Bloomberg survey was for consumer prices to have increased 2.7 per cent.

HIT The pound ti euro exchange rate has taken a further hit
HIT The pound ti euro exchange rate has taken a further hit

Sterling strengthened against the dollar on Wednesday as investors awaited United Kingdom labour market data for signs of a pick-up in wages that could add to arguments for an eventual rise in record low Bank of England interest rates.

British government bond futures also see-sawed on the figures and last stood at 128.39, down 17 ticks on the day - similar to their level before the data.

The number of people in work increased by 109,000 in the three months to April, taking the employment rate to 74.8 percent, a joint record high, the ONS said.

The Office for National Statistics said on Wednesday that workers' total earnings including bonuses after taking into account inflation fell by an annual 0.4 percent in the three months to April after edging up 0.1 percent in the first quarter.

But economists focused on the weak wage data.

That marked the biggest real-terms drop since the three months to September 2014.

Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said the wage numbers appeared consistent with signs of rising underemployment.

In the wake of the inflation increase, the pound may crash against the United States dollar when Wednesday's UK earnings figure comes out.

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