UK Inflation Rises Again
The latest set of UK inflation makes dizzying reading for UK consumers. Headline CPI hit 10.1% in July, marking an increase on the prior month’s 9.4% level and the highest reading since 1982. Core CPI, which strips out more volatile components such as food and energy, was also seen rising to 6.2% from the prior month’s 5.8%. This latest increase marks the tenth consecutive monthly increase in UK CPI which has seen the headline reading rising from 3.1% in September 2021 to the current 10.1% highs.
Transport & Food Costs Soar
Looking at the breakdown of the data, the largest upside contributions came from the obvious suspects. Transportation costs were seen rising 14.8% on the month while food and non-alcoholic beverages were seen rising 12.6%. These latest increases mean that the UK is suffering its worst fall in “real pay” on record. The margin between wage growth and inflation is now at -3%, putting even more pressure on UK consumers.
BOE Rate Projections Jump
Coming hot on the heels of the BOE activating its largest rate hike in 27 years last month (1.25% - 1.75%), the market is now widely expecting the BOE to press ahead with further hikes. OIS market pricing has jumped on the back of the data with market pricing now suggesting peak rates of around 3.4% next year, up from less than 3% projected in July.
GBP Higher, FTSE Sinks
GBP has rallied firmly on the back of the data though the reaction has varied across FX pairs. GBPCHF, GBPAUD, GBPNZD and EURGBP seeing the strongest moves. The FTSE has come under pressure on the back of the data as traders eye further, aggressive action from BOE near-term.
Inflation to Continue Higher
Looking ahead, the inflation outlook for the UK remains worrying. With the ongoing fall-out from the Russia-Ukraine war continuing to drive supply-chain issues, price look set to remain elevated near-term. Energy price increases are expected to continue throughout the year, putting further pressure on UK households. With this in mind, the UK government is widely expected to introduce further measures to help alleviate some of the burden. However, the current leadership race makes it hard to peg down any concrete plans.
Technical Views
GBPNZD
The rally in GBPZND off the 1.8857 level has seen the market trading back up to retest the broken ledge of support at 1.9164. This is now a key resistance level. If price fails here, the focus will return to the longer-term down trend and the prospect of a breakdown below current support. However, a break higher here will put the focus on the bear trend line and a move higher towards 1.9651 in the medium term.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.