GBP: Inflation remains too high – Commerzbank
|At first glance, yesterday's British inflation figures for July were clear: service inflation was two-tenths, while core and headline inflation were each one-tenth higher than expected. For market participants already concerned about strikingly persistent UK inflation, this suggested that interest rate cuts need to be slower – or preferably none at all, Commerzbank's FX analyst Michael Pfister notes.
Interest rate cut in September now seems unlikely
"Beneath the surface, the data was not quite so clear-cut. Much of the upward surprise was driven by volatile components. Travel prices rose sharply, with the start of the summer clearly catching seasonal adjustment off guard. This suggests that we will see a correction in the coming months. Accordingly, it was not entirely surprising that the pound was unable to hold on to its initial gains after the figures were released."
"As is often the case, the real news probably lies somewhere in the middle of the figures. Even allowing for the expected correction in volatile components in the coming months, it should be clear to all market participants that inflation remains too high. While other countries have now returned to inflation around their targets, UK inflation remains far too high."
"An interest rate cut in September now seems highly unlikely. As long as underlying inflationary pressure shows no signs of easing, the pound should remain relatively well supported."
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