Talking Points

- UK inflation may hit 3.0% prompting BoE governor Carney to explain to Chancellor Philip Hammond why.

- UK consumer spending may be crimped further, hurting growth.

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The British Pound has enjoyed a healthy run in the last few days, trading over 1.3050, driven mainly by a weak US Dollar and expectations that the UK may well increase interest rates sooner than had previously been expected. And this up-tick in inflation will be felt directly in the consumers’ pocket, especially with average wages stagnating, keeping growth in the UK capped.

Higher inflation has caused a market re-think with some commentators now seeing the UK raising rates this year while the CME Fedwatch Tool sees the chances of another rate hike in the US at less than 50% this year. This monetary divergence will drive the pair going forward and will also see the British Pound pick-up against the JPY, as Japan sticks to the path of loose monetary policy.

Chart: GBPUSD Daily Timeframe (March 20 - July 14 2017)

GBP to Push Higher if UK Inflation Grows

Chart by IG

And the UK inflation numbers on July 18 were just one of four potentially market moving areas identified that could impact UK asset markets next week, discussed in the latest ‘Key UK Events and Markets for the Week Ahead’ webinar today.

If you would like to listen to the 25 minute webinar, please sign up for free and immediate access.

UK Webinar Sign-Up July 14, 2017.

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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