Jamie Jemmeson
September 16, 2021

Does Elevated UK Inflation Suggest Interest Rate Could Rise Sooner?

Sterling

Sterling was on the front foot yesterday, benefitting from the release of the elevated inflation reading. The annualised inflation reading showed that price rises have seen the biggest jump since records began in 1997. Economists were quick to identify that the acceleration may be due to the “Eat out to help out” scheme last August. 

The BoE expects inflation to rise sharply this year and hit a peak of 4%. The strong reading for inflation could reinforce expectations that the BoE is set to tighten monetary policy quicker than the European Central Bank or the U.S. Federal Reserve.

Dollar

Manufacturing in the Empire State exceeded expectations as business conditions index surged 16 points to 34.3 in September. In addition, the new orders index jumped 18.9 points to 33.7 in September. As a result, firms remain very optimistic about the next six months.

Today, US August retail sales could fall for a second month. However, last week’s initial jobless claims fell to 310k, a new low since the start of the pandemic, which may raise hopes that concerns about new variants have not affected strong demand in the labour market. The market will watch today’s initial jobless claims for further clarity.

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