15 Apr 2014
Sterling supported by four-and-a-half-year-low inflation numbers
FXStreet (London) - Sterling has rebounded after declining at the opening of the European session. GBP initially fell to a low of USD1.6659 ahead of UK inflation data, but rebounded to undo all of the morning’s losses on the release of on-consensus data.
New multi-year lows
According to data released by the UK Office for National Statistics, UK consumer price index-measured inflation grew by 1.6 percent in the year to March 2014, down from 1.7 percent in February.
This morning’s data represents a new four-and-a-half-year UK inflation low and the sixth consecutive decline. According to the ONS this is the longest consecutive fall in inflation since modern records began.
The largest contribution to the fall in the rate came from transport, particularly motor fuels, with other smaller downward effects from the clothing and furniture & household goods sectors.
There were few components lifting prices, with only restaurants & hotels and alcohol & tobacco showing increases.
Improving UK wage environment
With UK February wage data due tomorrow, the fall in inflation continues to ease concerns over real wages. Despite the strengthening in the UK headline macro picture, wages have been outstripped by inflation for six years. The combination of steadily increasing employment numbers and declining prices will help to ease UK real wage conditions, and support consumer spending.
With the IMF recently upgrading UK GDP forecasts for the second time in six months as well as the declining slack in the UK labour market, this could be the low point in UK inflation. With the Bank of England’s focus recently shifting from the headline unemployment rate to a more inflation-based outlook, a pick-up in inflation towards the latter part of 2014 may push Mark Carney to bring a rate hike forward.
New multi-year lows
According to data released by the UK Office for National Statistics, UK consumer price index-measured inflation grew by 1.6 percent in the year to March 2014, down from 1.7 percent in February.
This morning’s data represents a new four-and-a-half-year UK inflation low and the sixth consecutive decline. According to the ONS this is the longest consecutive fall in inflation since modern records began.
The largest contribution to the fall in the rate came from transport, particularly motor fuels, with other smaller downward effects from the clothing and furniture & household goods sectors.
There were few components lifting prices, with only restaurants & hotels and alcohol & tobacco showing increases.
Improving UK wage environment
With UK February wage data due tomorrow, the fall in inflation continues to ease concerns over real wages. Despite the strengthening in the UK headline macro picture, wages have been outstripped by inflation for six years. The combination of steadily increasing employment numbers and declining prices will help to ease UK real wage conditions, and support consumer spending.
With the IMF recently upgrading UK GDP forecasts for the second time in six months as well as the declining slack in the UK labour market, this could be the low point in UK inflation. With the Bank of England’s focus recently shifting from the headline unemployment rate to a more inflation-based outlook, a pick-up in inflation towards the latter part of 2014 may push Mark Carney to bring a rate hike forward.