One of the longer lasting effects of the Brexit vote is a weaker pound. Contrary to stock markets and economic data, pound pressure continued and even suffered a second, more brutal round – the flash crash. And finally, nearly four months after the historic vote, we see in prices of imported goods.
Consumer prices are up 1% year over year, the highest since 2014 and above 0.9% expected. The rises are not limited to the most volatile items such as energy prices. Also, core inflation is up from 1.3% to 1.5%, also above predictions for 1.4%. The Retail Price Index has also accelerated to 2%, more than 1.8% seen beforehand.
BOE Governor Mark Carney said that the Bank is “not indifferent” to sterling, but this does not imply a total change in policy. They are bracing themselves for higher inflation. To curb inflation, he could raise rates and strengthen the pound. However, the prospects are for an economic downturn following Brexit (something that hasn’t happened yet), so the “Old Lady” will likely be reluctant to act.
In the immediate aftermath of the publication, we see no real reaction. GBP/USD had already strengthened in the Asian session ahead of the release, without any apparent trigger. So, perhaps there was no momentum left for a further rise.
Tomorrow we;ll get another important release. See how to trade the UK jobs data with GBP/USD.
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