Webinar: UK Inflation Beats Expectations, GBP Rises

GBP  USD Technical Analysis Will Inflation Force a Hawkish Tilt at the BoE

Global economy: UK inflation targets still proving elusive

The greenback also regained ground against the British pound Wednesday, after the British currency hit the highest level in a year earlier after United Kingdom wage figures tamped down expectations for hawkishness at the Bank of England.

At its simplest level, the policy dilemma facing Britain's central bank is that it must balance surging inflation brought on by the weakened pound since the referendum, with the slowdown in the economy, dwindling consumer spending and declining inward investment.

IG says futures indicate the FTSE 100 index of large-caps to open 3.3 points higher at 7,383.00. "Policymakers are already split in their decision and now the market would expect a more hawkish tone (on Thursday)", said Naeem Aslam, chief market analyst with broker Think Markets in London.

The discussion is also further complicated by the arrival of Sir David Ramsden on the MPC, a new member who is now regarded as someone that has yet to prove themselves either dovish or hawkish.

"Should any more policy makers join Ian McCafferty and Michael Saunders in voting for a rate hike tomorrow - such as Andy Haldane who's previously indicated he may be tempted - then the pound could head higher once again". They have kept interest rates unchanged since their rate reduction in August previous year at a record low 0.25%.

This is a key figure the Monetary Policy Committee (MPC) at the Bank of England (BoE) to consider when deciding to hike interest rates.

The pound erased an advance against the United States dollar after the report, and slid for the first time in four days versus the euro. Effectively, the Bank wanted to prepare the markets for a rate hike in the near-ish future. Meanwhile, it was expected to remain flat during the month.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said a sharp fall in consumer confidence "suggests that job-to-job moves will remain well below the pre-recession levels required to drive up overall wages gains". Equities in Asia have been negative today and the Shanghai Shenzhen and Hang Seng composites have led the declines. Retail sales rebounded in August.

However, Wednesday's Eurozone industrial production figures may offer the EUR GBP exchange rate a rallying point if these point towards greater domestic resilience. Output growth was forecast to accelerate to 6.6%. REC/KPMG figures last week showed employers raising starting salaries at the fastest pace in two years.

The debate around BoE monetary policy met with a bend in the road during first week of September, with economists at Berenberg and MUFG pointing toward a possible rate hike during the months ahead, while a strategist at UBS is actively betting on a rate cut. The latest annual expansion was the slowest since 1999.

BoE expected inflation to hit 3% by October, so it all appears to be in hand for the moment.

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