The widely expected fall in inflation to 3.6% announced this morning provoked some downward movement for sterling but it appears to have quickly corrected itself.
The Office for National Statistics (ONS) said that the decline was driven mainly by gas and electricity prices, but also by hotels, while food prices increased slightly in October, following a dip in September.
Sterling may also be coming under pressure as the froth comes off recent stock market gains. The FTSE lost nearly 4% this week, and while it only takes it back to where it was in late October, there are worries that it could be the start of the long-threatened sell off – and the pound does tend to follow stock markets. The Japanese yen usually goes the opposite way – strengthening as stock markets fall – but the opposite has happened this time around and it has weakened against all but the Swiss franc, which was by far the biggest loser yesterday.
Inflation was just one big data point this week and we still have Retail Sales and the Purchasing Managers Index (PMI) to go, both on Friday. It’s still looks like we’re heading to an interest rate cut in mid-December, but the hawkish Catherine Mann from the Bank of England has said she is yet to be convinced that inflation is beaten. Another influence will of course be the Budget, now just one week away.
In business news, America’s largest oil company ExxonMobil says it will close its ethylene plant in Fife, Scotland, with the loss of 400 jobs. It put the blame firmly on the UK government, saying “the UK’s current economic and policy environment combined with market conditions, high supply costs and plant efficiency do not create a competitive future for the site.” On the plus side for Scotland’s economy, last night its football team reached its first men’s World Cup Finals since 1998, which is likely to boost GDP next summer.
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