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Pound jumps against euro as UK inflation soars

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More reaction to this morning’s inflation figures is flooding in – and some experts are not pulling their punches.

Michael Hewson, chief market analyst at CMC Markets UK, says the decision by policymakers at the Bank of England to keep interest rates at a record low of 0.1pc this month now looks overly cautious:

Today’s data is a huge embarrassment for the Bank of England, whose procrastination over a modest 0.15pc rate rise earlier this month now makes it odds-on that all the pre-Christmas headlines will be of the ‘Bank of England steals Christmas’ variety – if they do bite the bullet and belatedly nudge rates higher.  

Richard Carter, head of fixed interest at wealth manager Quilter Cheviot, also expects tough conversations at the Bank of England’s next meeting of interest rate setters, the Monetary Policy Committee.

He points to Tuesday’s labour market figures, which showed that unemployment fell and vacancies rose even after the end of furlough, as further evidence in the case for a rates rise:

This morning’s print suggests we should be braced for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. Particularly given we now have more information on the state of the labour market in the UK. 

Some may say that the heightened inflation is evidence that the Bank of England should have acted already and started the process of tightening monetary policy. But really what’s causing the heightened price increases in the energy market is a perfect storm of factors that are all feeding through at the same time. 

But Dan Boardman-Weston, chief investment officer at BRI Wealth Management, also warns that policymakers should not be too hasty: 

The level of inflation is going to keep getting worse over the coming months as supply stays stretched, demand stays robust and base effects technically push the rate of inflation higher. This is undoubtedly going to put pressure on the Bank of England to raise rates, which we suspect they will have to do in the next few months given the high levels of inflation and robust labour market. Nothing we see leads us to believe that this inflation is permanent and as we start heading into Spring next year the figures will start falling rapidly. The Bank of England needs to be careful that they’re not too hasty in tightening monetary policy as a policy misstep could do more harm to the economy than this transitory inflation we are witnessing.

Read More: Pound jumps against euro as UK inflation soars

2021-11-17 16:13:00

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