As we had expected CPI inflation remained above estimates yesterday coming in at 3.4% vs expectations of 3.3%. While the trend is still downwards, most importantly it does once again warn us that we cannot just assume that inflation is going to ease through 2012. Inflation is the major risk to the recovery at the moment and the fact that inflation is once again becoming “sticky” at current levels will come as a disappointment to the Bank of England.
We also have to remember that both CPI and RPI are outpacing wage growth (1.4%) dramatically and that people are still, in real terms, getting poorer. The price of a barrel of oil in sterling terms has increased by around 10% in the past month and this will continue to hurt consumers’ pockets as long as it remains high.
The higher CPI number did allow sterling some room to breathe as it pushed higher against the euro briefly but it remains trading around the 1.20 level.
Today is all about the Budget. It seems like we have most of the details already – the Treasury has been leaking like a sieve – and while there will of course be yards of print written on the headline changes (50p tax rate, stamp duty) we have to remember that the budget is a political speech more than an economic one. Sterling is typically quite quiet during the speech unless some fiscal bomb is dropped and nothing so far suggests that this won’t be the case today. We will be covering the details of the Budget live.
We also receive the Bank of England minutes and UK public finance data and from macro-economic standpoint will be more important in the short term than the Budget. Divisions on the MPC exist and we suspect that we will see at least two members of the committee hint at support for further asset purchases but the vote will be unanimous. Sterling could be in for a slip as a result.
The noises from Europe have quietened over the past week but those that are leaking out are only exacerbating the fears of a further fiscal crunch. The Dutch authorities yesterday admitted that it too would miss the targeted 3% budget deficit figure for the beginning of 2013, with the number expected to be closer to 4.6%. This follows Spain’s admission last week that it too will miss the target of the latest EU fiscal compact. If the Dutch can’t sort it out then nobody will.
Indicative Rates Sell Buy
GBPEUR 1.1973 1.1999
GBPUSD 1.5903 1.5927
EURUSD 1.3265 1.3289
GBPJPY 133.14 133.28
GBPAUD 1.5119 1.5146
GBPNZD 1.9370 1.9398
GBPCAD 1.5714 1.5744
NZDUSD 0.8200 0.8221
GBPZAR 12.04 12.09
USDZAR 7.5650 7.6072
GBPPLN 4.9353 4.9622
EURJPY 111.06 111.33
Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time.
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