Market report: pound holds steady after inflation data


The pound remained relatively unmoved this morning after the release of key inflation data was in line with Bank of England (BoE) expectations.

The recent market consensus was that inflation data would be more influential than it had previously been. But as there were no big surprises, no major shift for sterling occurred. 

UK CPI rose 0.6% month-on-month in April, which is in line with market expectations but a doubling of March’s 0.3%. Inflation rose 1.5% year on year, slightly above market expectations of 1.4% but again doubling the 0.7% reading recorded in March. However, it’s worth remembering that a year ago we saw a Covid induced plunge so the sharp rise year on year is not coming from a normal period.

Some price pressure has been linked to the rise in commodity-based costs, reinforcing the BoE’s view from its last policy meeting. Household utilities, clothing and fuel are the main areas affected as petroleum products experienced the highest growth rate of any output prices in April. There isn’t much in the way of domestic policy that can influence this kind of growth and thus shouldn’t have much bearing on the BoE’s next steps.

There was also positive employment data for the UK as the quarterly employment rate rose for the first time since the beginning of the pandemic. The unemployment rate fell faster than expected between January and March, the largest quarterly decrease since Q3 2015, outpacing all analyst expectations. The employment rate also rose to 75.2%, now only 1.4% lower than pre-pandemic levels.

This is a broadly positive sign for the economy but should be treated with caution. These numbers are yet to feel the impact the ending of the furlough scheme is likely to bring. 

Key announcements

10.00am- EUR- Consumer Price Index (MoM) (Apr); expected to decrease to 0.6% from previous 0.9%

10.00am- EUR- Consumer Price Index (YoY) (Apr); expected to remain at 0.8%

19.00pm- USD- FOMC Minute