x

Abu Dhabi, UAEFriday 21 September 2018

UK pound falls on unexpectedly slowing inflation

Bank of England now less likely to bring in interest rate cut imminently

A mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England. The pound has tumbled. Luke MacGregor / Reuters
A mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England. The pound has tumbled. Luke MacGregor / Reuters

The pound dropped from a 10-month high versus the dollar as UK inflation unexpectedly slowed in June, reducing the chances of an imminent interest-rate increase by the Bank of England.

The yield on benchmark 10-year government bonds dropped to the lowest level since June.

Sterling was at US$1.30 at 2.30pm UAE time and had weakened versus all of its 16 major peers after annual consumer-price inflation slid to 2.6 per cent last month, below the 2.9 per cent forecast by economists in a Bloomberg survey and the four-year high reached in May. The UK currency climbed earlier to its highest level against the dollar since September after the stalling of the US president Donald Trump’s health reform cast doubt on any future deregulation and tax measures.

The slowdown in inflation will support the arguments of the members of Monetary Policy Committee who contend that the UK economy is weakening while the pick-up in inflation may only be temporary. In the money markets, traders do not expect a 25-basis-point rate hike until August next year at the earliest, with the chances of a hike this year below 50 percent.

“The Bank of England is the winner of the day,”’ said Jordan Rochester, a foreign-exchange strategist at Nomura International in London. “We could break below US$1.30 again, just because those guys who put their short-term longs on might re-position.”

RELATED ARTICLES
Recommended