Webinar: Live Event Coverage: UK CPI

The Pound has rallied against its rivals after CPI inflation held steady at 2.3% in March, matching the consensus.

But the rise in the headline figure was offset by a weaker core number -- which fell to 1.8% in March from 2.0% in February, slightly below the consensus, 1.9% -- and it seems unlikely that the Pound can sustain its rally in the longer term as the CPI print is unlikely to precipitate any shift in stance at the Bank of England.

Headline inflation has surpassed the bank’s 2% target rate for the second consecutive month, but it has so far been overlooking that rising inflation, which it says is down to the slump in the Pound sparked by last year’s Brexit vote.

Kristen Forbes emerged as the sole hawk at the Bank of England’s last monetary policy meeting last month. She was only MPC member to vote for a rate rise when Bank of England voted to keep interest rates unchanged at 0.25% -- the first time in eight months the decision was split. She was of the view that UK inflation was rising fast enough not to be tolerated any longer and was likely to remain above the BoE’s 2% target for at least three years.

However, Mark Carney and Co are more worried about weaker wage growth (data tomorrow is forecast to reveal that Average Hourly Earnings slowed to an annualized 2.1% from 2.2% in January) and retail sales (which also slowed at the beginning of the year, according to data from British Retail Consortium this morning) so the bank looks likely to remain extremely accommodative in its monetary policy, which will weigh on the Pound in the longer term.

Look to the EURGBP cross for any signs that Sterling can maintain its strength in the longer term. The Dollar and Yen look fundamentally stronger than the Euro, which is facing pressure of its own owing a fresh spike in French political anxiety.

--- Written by Oliver Morrison, Analyst To contact Oliver, email him at oliver.morrison@ig.com

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