Inflation soars to a fresh decade high

By Ashley Finill

UK Economy

We have already had a busy start to the morning in the way of data and currency market movements as inflation figures from the UK have been released at 8am. For a consecutive month the inflation rate has risen and again higher than anticipated. The figure has risen by almost 1% to 5.1%, up from last month’s reading of 4.1% which records a fresh decade high as the cost of living in the UK continues to rise at an alarming rate. This will almost certainly put mounting pressure on the Bank of England to increase interest rates ahead of their meeting tomorrow. Historically there has never been an interest rate hike in December in the UK but in these unprecedented times with the virus stronghold on the UK economy still present it may force the hand of Bank of England Governor Andrew Bailey, who in the past few months has been rather dovish on increasing the rate imminently, although has been hinting that a rise down the road is likely to be on the cards. With inflation at a new high, sterling has been given a boost in the morning gaining over half a cent on both the Euro and USD. This is likely to be a pricing in of a rate hike from the BoE, but it may be worth taking note that this happened last month with a hike expected in November, but rates were held and consequently we saw a sharp fall for sterling. All eyes will be on tomorrow’s meeting, if you have a Euro requirement and are more risk averse then it may be prudent to speak to your broker today ahead of tomorrow’s meeting.

Plan B passed through Parliament  

Last night Parliament passed through a vote in the House of Commons on Boris Johnson’s “Plan B” on new Covid restrictions in England. The fresh set rules now state that adults must show a Covid Passport to enter nightclubs and other large events. These new measures are now active as from today but have caused controversy amongst the Conversative party, as 100 conservative MPs rebelled from Boris’s new plan. It had been expected over the past few days such a rebellion to happen, but not at this scale. With reports already suggesting that letters of no confidence are being written from various Tory MPs could this spell the beginning of the end for Boris Johnson’s tenure as the Prime minister of the UK. This will almost certainly impact sterling’s fortunes against the majors as we have seen many times in the past with political uncertainty, this could be a bumpy few weeks for the PM as the new Covid variant Omicron is seemingly ripping its way through the UK with cases rising higher each day, with some hospital admissions being announced yesterday albeit very unclear from the foreign secretary Dominic Raab giving two very different figures of 9 and 250 to two separate live TV interviews.

Data today and the rest of the week

As mentioned today has already started with inflation data released in the UK which has caused volatility in the currency market which is likely to continue throughout today and tomorrow with the BoE interest rate decision tomorrow at 12.30pm. Later today in the US retail sales are to be released at 1.30pm along with the Federal Reserve’s interest rate decision at 7pm which is expected to remain at 0.25%. Tomorrow morning at 9am the UK will release PMI figures as will the Eurozone at the same time, this could also be a market mover and so something to be aware of. The Eurozone also announce their interest rate decision tomorrow at 12.45pm which is expected to remain the same. Later on Thursday afternoon PMI data also comes out in the US at 2.45pm. Lastly seeing out the week the UK releases retail sales figures in the morning at 7am.