Sterling gained across the board yesterday as inflation confounded expectations and rose in December, taking the annual rate to 4%.
The impact on the pound was immediate and, for the most part, sterling held onto the gains, ending the day around a quarter of a percent up on the euro and a third of a percent up on the US dollar.
Tobacco duty rising by 16% and alcohol price rises of nearly 10% helped the overall increase in inflation, although core inflation, in which these are excluded, was also unexpectedly high at 5.1%.
While the currency markets reacted positively to the idea of slower than expected drops in interest rates this year, it led to a 1.5% fall in the FTSE as businesses reacted negatively. Interest rates are still expected to fall in 2024, but less quickly.
Elsewhere in the world, in China GDP was fractionally less than expected at 5.2% (although still an increase from last month) and unemployment slightly higher at 5.1%. Analysts warn of weakness behind the headlines, however, with high levels of debt and a housing crisis at individual level, and an aging, shrinking workforce at a national level leading to what is termed “secular stagnation”.
Inflation in the eurozone, meanwhile, was confirmed at 2.9% and core inflation at 3.4%.
At the World Economic Forum in Davos, Switzerland, Argentina’s new president Javier Milei warned the Western world that it is in danger from “socialism, and therefore poverty”.
In Smart Currency’s new Quarterly Forecast we take a dive into the Argentine peso – download your copy.
Also coming in overnight, the RICS House Price Balance recorded that overall, more surveyors than not expected property prices in the UK to fall, but fewer were negative than last month. This was the most optimistic picture since November 2022.
In UK politics, the government’s Rwanda bill was passed, and the government will be pushing to turn the plan into reality and send those who arrive on British beaches in small boats to West Africa.
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