RationalFX: Sterling rallied against both the euro and dollar this morning as U.K. inflation surged to its highest level for over a decade a day before the Bank of England policy meeting.
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GBP
According to the data released by the Office for National Statistics, consumer prices rose 5.1% year on year to its highest level since September 2001exceeding expectations of 4.7% rise. Core inflation, which ignores volatile items climbed to 4% for November beating expectations of 3.7% making this its highest reading since records began back in 1997.
The surge in inflation leaves the Bank of England stuck between a rock and a hard place with rising inflation and the threat of a worsening Covid situation making policy decisions extremely difficult.
Up until now, odds of a U.K. interest rate hike this month have subsided. Comments from traditionally hawkish members of the monetary policy committee that we may need to wait and see the full extent at which the Omicron variant will impact the U.K. economy has resulted in markets effectively pricing out a rate hike this month.
Yesterday, the U.K. also released its latest jobs report with data showing robust wage growth with employment rising in the U.K. According to the data, U.K. wages increased to 4.9% whilst employment rose by 149,000 in the three months to October.
Whilst the impressive jobs data is a positive for the U.K. economy it provides a conundrum for the Bank of England as rising wages often act as an inflationary pressure and risk forcing decade high inflation even higher.
All eyes will now focus on the Bank of England interest rate decision tomorrow. From a data perspective the bar has been met for a rate hike this month, however, it remains to be seen if the uncertainty surrounding the spread of the Omicron variant may force the Bank of England to hold off for now.
Economic Calendar
07:00 – GBP – Consumer Price Index (YoY) (Nov) actual 5.1% expected 4.7%
13:30 – USD – Retail Sales (MoM) (Nov)
13:30 – USD – Retail Sales Control Group
19:00 – USD – Fed interest rate decision
Source : ETFWorld.co.uk
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