Pound up as inflation set to temper rate cuts
Published 19/10/2016 | 02:30
There was modest relief for Irish exporters yesterday as sterling gained against the euro amid signs that rising UK inflation may stall any Bank of England move to hike interest rates.
Sterling strengthened against 1.1pc to 89.30 pence per euro as a report showed annual consumer prices rose last month at the fastest pace in almost two years.
The pound gained after a British government lawyer said it's "very likely" that any agreement with the European Union over Brexit would need to be ratified by Westminster.
Any delay may cheer investors who fear the UK is prioritising immigration controls over trade.
The pound's drop since the Brexit vote in June is creating difficulty for importers but is a boost to British exporters.
At the same time, it poses a dilemma for monetary policy makers as it fuels faster inflation that may become an obstacle for the BoE's monetary easing programme.
Most economists surveyed by Bloomberg said the UK central bank will cut the benchmark rate next month after BoE Governor Mark Carney said he will tolerate faster price gains to boost the economy.
While the statistics office said it's not yet seeing explicit evidence of a currency effect in consumer-price changes, weaker sterling is slowly filtering through the economy, with factories seeing their costs surge.
"The rise in the UK's inflationary pressures could interfere with the BoE's unorthodox plan, prevent the bank from a further rate cut in the medium term and even bring the possibility of a premature rate rise on the table," said Ipek Ozkardeskaya, an analyst at London Capital Group Holdings. (Bloomberg)