Pound surges against euro as UK inflation skyrockets

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MOre’s reaction to this morning’s inflation numbers is pouring in – and some pundits are not doing well.

Michael Hewson, Chief market analyst at CMC Markets UK, says Bank of England policymakers’ decision to keep interest rates at an all-time high of 0.1 pc this month now seems too cautious:

Today’s data is a huge embarrassment for the Bank of England, whose procrastination over a modest 0.15 percent rate hike earlier this month now makes all the pre-Christmas headlines likely. will be like “The Bank of England steals Christmas” – if they bite the bullet and belatedly push rates higher.

Richard Carter, head of fixed interest at wealth manager Quilter Cheviot, also expects some tough conversations at the Bank of England’s next meeting of interest rate-setting officials, the Monetary Policy Committee.

He cites Tuesday’s labor market figures, which show unemployment fell and vacancies rose even after the holiday ended, as further evidence of a rate hike:

This morning’s print suggests we should prepare for a showdown at the next MPC meeting in December, where all bets will be on a rate hike. In particular, we now have more information on the state of the UK labor market.

Some might say that the increased inflation is proof that the Bank of England should have already acted and started the process of tightening monetary policy. But in reality, what causes the price increases in the energy market is a perfect storm of factors that are all reverberating at the same time.

Corn Dan Boardman-Weston, Chief Investment Officer at BRI Wealth Management, also warns that policymakers shouldn’t be in too much of a hurry:

The level of inflation will continue to worsen over the next few months as supply remains tight, demand remains robust and base effects technically push the inflation rate up. This will undoubtedly put pressure on the Bank of England to raise rates, which we suspect it will have to do over the next few months given the high levels of inflation and the robust labor market. Nothing we see leads us to believe this inflation is permanent and as spring approaches next year the numbers will start to drop rapidly. The Bank of England needs to be careful not to tighten monetary policy too quickly, as one misstep could hurt the economy more than this transient inflation we are seeing.

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