Downward Move for Pound Sterling Following Inflation Data: GBP Forecast to be Ephemeral

Published: Tuesday, 15 September 2015 17:00 BST - Written by Ben Hughes

STORY LINK Downward Move for Pound Sterling Following Inflation Data: GBP Forecast to be Ephemeral

Foreign Exchange News Now: UK CPI Declines, Pound Sterling Falls Today

This morning’s official UK inflation data from the Office of National Statistics (ONS) revealed that the price of a basket of carefully selected British goods and services cost exactly the same amount of money last month as it had done in August 2014. The year-on-year print of 0.0% was widely anticipated by analysts, but the fact that it represented a drop-off from July’s counterpart annualised figure of 0.1%.

Howard Archer of IHS Global Insight analysed the figures earlier today and concluded that, ‘with consumer price inflation flat in August and core inflation easing back to 1.0%, there is little immediate pressure on the Bank of England to start raising interest rates’. Archer went on to assert that a, ‘further reason for Bank of England caution on interest rates is the recent evidence that the economy has hit a soft patch during the third quarter.’

GBP to EUR Close to Worst Rate of 1.35 Today on UK Inflation Dip, Pound to Australian Dollar Exchange Rate Falls

The Pound Sterling (currency : GBP) shed support as a result of the data, sending the GBP EUR exchange rate back down into the 1.3500s – the pair had been pushing towards 1.3700 in early trading. Meanwhile, the Pound Sterling Australian Dollar exchange rate slumped into the 2.1500s – the pair had been changing hands at above the 2.2000 threshold as recently as last week.

The drop off in the pace of price rises to zero percent was blamed by economists on the generalised easing of commodity prices in recent months, which was in turn fuelled by evidence of the continued slowdown in the giant Chinese economy.

Forex Forecast: Oil Prices Impact UK Inflation and Pound Sterling Trading Now

Former Bank of England policysetter Andrew Sentence explained that the fall in input prices, as evidenced by the downward move of the price of a barrel of crude oil during since the turn of the year, was likely to reverse in the medium term. Sentence observed that the effect of falling energy prices, ‘will wear off in the months ahead, with CPI inflation likely to rise back to 1% to 2% in the UK by the first half of next year.’ For this reason the current bout of relative Sterling weakness is forecast to prove ephemeral.

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