Inflation hits 4.2%

Niki Sehmbi17th November 2021

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Good morning,

Early this morning GBP-EUR hit 1.1910. UK CPI inflation rose 4.2% year-on-year beating market expectation by 0.3%. The main driver behind the rise was the increase in utility prices which has dominated the headlines throughout October. Food inflation rose from 0.9% to 1.3% but the 11.9% month-on-month utility process rise played the key role. The Bank of England’s target for inflation is 2%, and with UK prices rising at the fastest rate for almost 10 years you would expect that the rate hike timeline has been shortened.

The pound to euro exchange rate has been heading one way over the last week with GBP-EUR up 1.25% week on week. Yesterday’s labour market statistics may help to get GBP-EUR to hold in the 1.19s. The number of employees on payroll rose by 4% compared to October 2020 recording a rise of 1,139,000 employees. In the last month we saw an increase of 160,000 from September to October. The unemployment rate also fell to 4.3% for September beating expectations by 0.1%. The continued strength of the UK labour market will continue to put pressure on the Bank of England to increase interest rates in December.

GBP-USD also rallied yesterday on the back of the increasingly likely rate hike in December. OIS markets are now showing the chance of a rate hike above 50%. Decision makers will want to be sure that the furlough scheme isn’t continuing to having a prolonged effect on the labour market before making the call in December. Historically December isn’t the time to make big fiscal policy decisions.

Have a great day.

Josh Saunders, Senior Relationship Manager.

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