The British Pound has seen renewed selling pressure across the European open on Wednesday in response to the latest economic data released there today. The Office for National Statistics (ONS) released its May inflation report which saw both headline and core CPI hitting the BOE’s 2% target.
Inflation Surpasses Target
Year-on-year, headline inflation was seen jumping to 2.1% last month, rising form the prior month’s 1.5% reading and surpassing the 1.8% figure projected. Similarly, core CPI, which strips out food and energy prices, rose to 2% from the prior month’s 1.3% reading, again beating the 1.5% reading forecast ahead of the release.
Fuel Prices Surge
Looking at the breakdown of the data released by the ONS, fuel prices provided the largest upward contribution, rising 17.9% year on year. This marked the largest increase in over four years and had a pronounced effect given the heavily subdued prices this time last year as a result of the pandemic.
Clothing prices also saw a large upward contribution, rising 2.3% to mark their biggest increase since 2018. This comes amidst the passing, or reducing, of the many discounts retailers had in place over the prior month as shoppers were welcomed back.
UK Recovery Growing
The figures reflect the pace of the recovery in the UK as it continues along the path to full reopening. Inflation expectations have been rising for some time and while the BOE, as with the Fed, has reaffirmed its view that any spike in inflation is likely to be temporary, the spike above target so early on is certainly going to be under discussion. Just this month, the BOE’s chief economist Andy Haldane warned that sustained levels of high inflation must be “avoided at all costs”.
Reopening Delay Impact
If inflation continues to rise at the current trajectory, the chance of a shift in tone from the BOE seems highly likely. News this week, however, that the UK government has delayed its full reopening date from June 21st to 19th July will be interesting to monitor, in terms of its impact on inflation. However, with bars and restaurants open and with staycation demand soaring, the near-term outlook looks geared towards higher prices.
GBJPY continues to hold beneath the 156.66 level for now. While MACD has turned bearish, the bull channel remains intact, and it will take a break of the 153.39 level to see a shift in sentiment. While this level holds as support, the focus is on a further push higher.