Inflation pushes pound higher

Tuesday, 21 March: FTSE indices took a step higher at the open this morning, before stronger than expected UK inflation data prompted sterling to rebound, which muted gains in UK equities as they became more expensive to foreign currency investors. Brent Crude fell $1(2.00%) to $51.11/bbl marking the lowest level of trade since the end of November 2016, as market participants discounted the latest rhetoric from OPEC that it would extend output cuts beyond June. The S&P 500 slipped 1% lower at the time of writing as investors pulled back from postelection trades, over fears U.S equities were approaching overbought territory, gold was $17 higher since the turn of midnight on the sentiment standing at $1245/oz at the close in London.

UK consumer inflation data indicated that prices rose at the fastest pace in nearly three and a half years in February, overshooting the banks inflation target as a consequence of the steep devaluation in sterling after the EU referendum. The Office for National Statistics reported annual inflation as reaching 2.3% in February, from 1.8% the previous month, the fastest pace of annual price growth since September 2013, and the first time customer price inflation came in above the Bank of England’s 2% target since November of that year. The increase in the general price level was largely driven by rising prices for food, transport, as well as culture and recreation. Data for January highlighted retail sales slumping for a third consecutive month, and retail data forthcoming this week will be important in determining if the economy has started slowing, as consumption forms a notable part of GDP. The Bank of England expects inflation to peak at around 2.75% early next year, and Governor Mark Carney has signalled he will take a dovish approach with inflation if it is conducive to stability in the UK economy as PM Theresa May oversees the UK’s withdrawal from the EU.

Across Europe, indices were down as the FTSE 100 closed -0.69%, the DAX 30 -0.75%, and the CAC 40 -0.19%.

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