UK Consumer Inflation soars above 3 pct

Wednesday, February 17, 2010

Yesterday morning, the Bank of England released its CPI, showing that consumer inflation in the United Kingdom rose to an annual pace of 3.5% in January.

While Forex online analysts had predicted an increase of 3.6% in inflation, the actual rise of 3.5% still required the BoE governor Mervyn King to write a letter to the Chancellor of the Exchequer Alistair Darling – the BoE chief is
required to write an open letter to the Chancellor when inflation misses its 2% target by more than a full percent.

The BoE had warned that the January inflation was likely to be higher than that of December’s 2.9% increase, as a temporary cut in the value-added tax expired at the end of last year, returning the VAT to its previous level of 17.5%. At the same time, core CPI, which excludes the cost of energy, food, alcohol and tobacco, accelerated 3.1% in January, the fastest pace on record.

The Pound appreciated against the dollar, after BoE reported that British inflation hit a 14-month high in January. The GBP/USD pair hit a 1.57278 high during the European morning trading sessions – the sterling gained 0.4% against the US dollar following the release of the inflation report.

The release of the CPI index Coincided with news that shares in the leading British Bank Barclays surged 7.66% after beating expectations with the profits over 11£ Billion last year – also responsible for pushing the pound towards yesterday morning’s heavy gains. The GBP/USD closed 1.56651 yesterday, up 0.74% from the days open.

After a bumpy Tuesday, the Pound is buckled in tight for a very chaotic Wednesday, as Britain is set to release a string of important economic data, leading the pack is the Claimant Count Change.

While this number is generally considered a lagging indicator, the number of unemployed people is an important signal of overall economic health as consumer spending is highly correlated with labor conditions.

The Department of Statistics is predicting a drop of -14.6K in employment versus last month’s fall of -15.2K. Economists are also forecasting that the unemployment rate will remain at its current level of 7.8%. The highly anticipated employment figures will be accompanied by the result so the MPC Meeting Minutes as well as the Average Earnings Index, predicting to show a rise of 1.2% compared to the same three months last year.



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