Home » Currency Note » Currency Note » UK inflation jumps to 2.7% in August

On 11 September, we learned that average earnings in the UK increased by 2.9% in the three months to July. This was good news for British households, who have been feeling the pinch for some time now. Yesterday, attention turned to the inflation rate in August, to see if the cost-of-living burden could ease further. Analysts had expected inflation to fall to 2.4% from 2.5% the previous month, but the reading actually jumped to 2.7% – the highest mark for six months.

It means that inflation is now increasing faster than total pay, with the three main factors being transport, clothing and footwear, and recreation and culture costs. There is talk of inflation continuing to rise in the months ahead, especially if the Brexit talks flounder. Although the news is bad for the British public, investors took it as a sign that the Bank of England is more likely to increase interest rates and the pound strengthened following the release. It managed to break through the $1.32 barrier at one point for the first time since 26 July 2018.

However, the move proved to be short-lived, as the dollar retraced all of its earlier losses and managed to gain ground against sterling. The pound weakened following reports that the UK government has rejected Europe’s offer to solve the Irish border problem. It essentially means that Brexit negotiations have suffered another blow and the markets certainly didn’t take too kindly to the news.

In the eurozone, construction output beat expectations by increasing by 2.6% from a year earlier in July 2018. The figure had been expected to come in at 1.7% and the news will certainly be welcomed by EU leaders. Speaking of the EU, Theresa May attacked criticisms made by Michel Barnier concerning her Chequers proposals. She claimed that he is making unacceptable demands on the British government.

Today, we will also see the eurozone’s flash consumer confidence reading for September, as well as existing home sales in the US.

If you’re concerned about the impact of so many events pulling and pushing on the exchange rate, do remember that the risk is controllable. Your Personal Trader can use a forward contract to lock in an exchange rate you – just give them a call on 020 7898 0541 to find out more.

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