A big hole has opened up in those expectations for an early rise in UK interest rates, taking a bite out of sterling in the process.
The currency has fallen 0.7 per cent from its intra-day high after UK inflation data came in lower than expected. The pound is trading at $1.3032, down from from highs of $1.3132. It is now down 0.2 per cent against the dollar on the day.
June’s annual inflation rate fell to 2.6 per cent – it was expected to remain steady at 2.9 per cent.
Aberdeen Asset Management’s chief economist Lucy O’Carroll said:
These numbers are a real surprise, showing the first drop in inflation since autumn 2016. Lower fuel prices have pulled down the inflation rate more than expected. But we’ve also not seen the impact from rising food prices that we were expecting, either.
This is going to kill the chances of a rate rise in the short term. We’ll learn more about the Bank of England’s thinking in a couple of weeks, but we can expect the calls for a rate rise to reduce to a whimper.
The figures helped UK stocks recover early losses. The FTSE 100 is now up 0.2 per cent on the day, having been 0.2 per cent lower in earlier trading.
(Chart via Bloomberg.)