INFLATION has crept past the Bank of England’s 2% target, but the central bank is unlikely to shift interest rates before the October 31 Brexit deadline, say City economists.
The Consumer Price Index rose to 2.1% in July from 2% the previous month. The City had predicted it would fall to 1.9%, but a rise in the cost of computer games and hotel prices caught them off guard.
The battered pound spiked on the news, adding 0.8 cents to $1.2070 on talk of a rate rise.
The yield gap between UK two-year and 10-year bond today inverted for the first time since 2008 today, a key indicator that investors see risk in the British economy.
David Cheetham, chief market analyst at XTB.com, said Bank governor Mark Carney and the eight other rate-setters will hold fire on a change in interest rates until after Brexit and are then far more likely to cut.
He said: “As such, this data will unlikely provide any lasting upside in the pound and the currency continues to languish around the recent lows just above the $1.20 handle.”
Yesterday the latest pay figures showed wages rising at 3.9% a year, well ahead of inflation.
Phil Smeaton at Sanlam UK said: “Consumers are pessimistic about their economic future, but Prime Minister [Boris] Johnson is resolute in his belief that the UK economy will be ready to soar on November 1.
“We are sure Carney is ready to stand by the Prime Minister and support his post-Brexit stimulus package.”
Nancy Curtin, of Close Brothers Asset Management, said: “It’s not been an easy month for the UK. Inflation remains near target, but continued depreciation of the pound could push it higher. If growth continues to slow, consumer sentiment is likely to fall further.”
