Connect with us
Our website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

Top Stories

Sterling steady as double-digit inflation deepens growth fears

Sterling steady as double-digit inflation deepens growth fears 1

By Samuel Indyk

LONDON (Reuters) -The British pound was steady on Wednesday as data showed inflation climbed to its highest level in more than four decades in July, heaping pressure on the Bank of England to bring down prices but increasing the risk of a sharper economic slowdown.

Consumer price inflation rose to 10.1% in July, its highest since February 1982, official figures showed. A Reuters poll showed economists had expected inflation to rise to 9.8%.

Higher-than-forecast inflation supports the view that the Bank of England (BoE) will follow up last month’s 50 basis point rate rise with a second consecutive half-point increase in September.

Money markets are now fully pricing in a 50 basis point rate rise from the central bank next month, with outside chances of a larger 75 basis point rate hike, according to data from Refinitiv.

Traders are now also pricing in a further 200 basis points of tightening by May next year, taking the Bank Rate to 3.75%. Prior to labour market data on Tuesday, traders expected interest rates to peak in March with a further 150 basis points of tightening, Refinitiv data showed.

Even with inflation running at its highest level in decades, analysts said the outlook for the pound remained bleak as front-loading rate rises increased the risk of a hard landing for the economy.

“Sterling is highly correlated to UK recession risks right now,” said Viraj Patel, global macro strategist at Vanda Research, who said that Wednesday’s data is likely to lead to faster, front-loaded tightening from the BoE.

“Today’s CPI print reinforces the stagflationary risks in the UK. You wouldn’t necessarily want to be holding a risky currency like sterling into a recession.”

At 1105 GMT, the pound was little changed at $1.20945.

Against the euro, sterling was also flat at 84.02 pence, after earlier touching its strongest level against the single currency since Aug. 4 at 83.90 pence.

British two-year government bond yields surged to their highest since November 2008 following the data.

The gap between 2-year and 10-year gilt yields – sometimes viewed as a signal of recession – was at its most inverted or negative on record at around minus 17 basis points, according to Refinitiv data going back to late 2010.

Longer-dated yields are typically higher than shorter-dated yields because investors demand a premium to compensate for the risk of buying bonds that mature years later.

The BoE said this month it expected inflation was likely to peak at 13.3% in the fourth quarter, due mostly to the surge in energy prices. The central bank also forecast a five-quarter-long recession, beginning at the end of this year.

(Reporting by Samuel Indyk, additional reporting by Tommy Reggiori Wilkes; Editing by Robert Birsel and Devika Syamnath)

Global Banking and Finance Review Awards Nominations 2022
2022 Awards now open. Click Here to Nominate

Advertisement

Newsletters with Secrets & Analysis. Subscribe Now