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Will UK interest rates rise as inflation outstrips wage growth?

14 February, 2018, 18:05 | Author: Samuel Sharp
  • Dollar Advances As Strong US Consumer Inflation Backs Fed Rate Hike Hopes

Petrol rose by 1.1p per litre on the month to 121p per litre, while diesel rose by 1p to 124.5p per litre.

Inflation rose 2.1 percent from a year earlier and core prices increased 1.8 percent.

"We will be looking for an increase when the ONS reports next week". The Fed said in December that it anticipates three interest rate increases in 2018, and newly seated Fed Chair Jerome Powell hinted Tuesday that the central bank would not deviate from those plans going forward, so long as the market shows signs of continued growth.

Mel Stride, Financial Secretary to the Treasury said: The good news is that inflation is expected to fall this year. But they are yet to reach last year's profitability levels.

Whether you're invested in bonds or considering a auto loan, you should know what's up with the Consumer Price Index (CPI).

Dow futures fell more than 200 points in response to the news. The 10-year was at 2.82 percent ahead of the report.

"The finance part of the story as reflected by bank credit growth to manufacturing or debt issuances from non-finance companies does not support the idea that there has been a major turnaround in investment in infra or manufacturing", he said. Gasoline prices rose 5.7% in the month and fuel oil costs were up 9.5% after very cold weather in the eastern U.S. Apparel prices were up 1.7% in the month. As the bulk of independent forecasters have noted for some time, this can be attributed to the related combination of a weak investment cycle, persistent Brexit uncertainty, and higher inflation. That strong pay number spooked investors, sparking a sell-off that knocked stocks down 10% from their January 26 peak and into correction territory for the first time in two years.

"Our long-held view of higher United Kingdom rates and sterling still stands, but in the short term the politics, stretched market positioning and the state of the global risk environment may provide headwinds against the pound", said Nomura currency strategist Jordan Rochester. That was biggest monthly gain since 1990.

The Sterling traded higher against the USA dollar on Tuesday on news of the British inflation rate rallying with the pound recording a high of 1.3900 from trading at around 1.3883 from the earlier trading session.

Gas prices have risen a bit more this month: On Wednesday, the nationwide average gas price was $2.56 a gallon, up three cents from a month earlier. So, even a softening of inflation today on less sterling depreciation passthrough is unlikely to change the thinking much within the MPC (monetary policy committee).

Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond fund, said: "UK inflation remains elevated, and with CPI remaining at 3.0%, there is a good probability the BoE will not be able to get CPI inflation back to the 2% target this year".


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