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19 September 2018

Could higher inflation increase pressure on Bank of England?

Contrary to expectations, inflation has increased for the month of August from 2.5% to 2.7%. The rise places it at the highest level in 6 months, as the figure edges away from the Government’s 2% target rate.

Recent weeks have shown marked Sterling strength against the Euro, as there were far more positive signs from the Brexit negotiating table. Chief negotiator, Michel Barnier, told the media a deal could now be reached by November.

Nevertheless, the CPI falls in the second quarter appear to have been temporary; rising prices in recreational goods, transport and clothing were key drivers in the August growth figures, with the latter two rising in tandem with oil prices. Despite this, UK house prices continue to grow at their lowest annual rate in five years.

There may be more inflation to come, as medium-term economic factors manifest into demand-driven, inflationary pressures; Wage growth is beginning to see positive signs, whilst unemployment is at a near 44-year low of 4%.

All eyes now turn to the Bank of England, as today’s figures will increase pressure on the MPC to raise interest rates in the November vote.

James Rowbury, Investment Research Coordinator

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Could higher inflation increase pressure on Bank of England?
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