Inflation in August jumped to its joint-highest level since the vote to leave the European Union a year ago, as Brexit continues to push up the cost of living in the UK.
GBP/USD traded above 1.32600 on the release of higher than expected United Kingdom inflation data, putting pressure on the United Kingdom central bank to temper price rises. Mining and electricity sectors however grew at robust 4.8% and 6.5% respectively in July.
The core inflation rate increased to 2.7% from 2.4% previously and compared with consensus forecasts of 2.5% while the RPI inflation rate increased to 3.9% from 3.6% in July.
The benchmark consumer-price index rose 3.36% from a year earlier, quicker than July's 2.36% increase.
Manufacturing output, which has the maximum weightage in the overall index, inched up at a marginal 0.1 per cent in July.
"Beyond today's data, inflation looks set to rise further", Capital Economics economist Shilan Shah said.
"CPI remains well above the Bank of England's 2% target and we expect it to remain above target throughout the third and fourth quarters of 2017". However, the bank cautioned that price growth could accelerate from the current lows. The MPC will announce its latest interest rate decision on Thursday, which is broadly anticipated to see rates remain on hold at 0.25%. Headline inflationary pressure should begin to moderate in 2018 as the large moves in the pound drop out of the reported numbers.
He explains that the September numbers used to determine the annual increases in pension and benefit levels are likely to exceed both wage inflation, now running at 2.1%, and the 2.5% underpin used for the triple lock.
"Over the long term, inflation is rarely a country-specific phenomenon, especially for developed, open, market economies".
"The combination of this along with high levels of debt, creates the threat of deflation - the stuff of nightmares for central bankers - and explains why they remain so cautious to "normalise" monetary policy at present".
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