UK inflation data beats market expectations rising to 11.1%

British inflation has accelerated to the highest level for 41 years, driven by soaring energy, food and transport prices in a worsening cost-of-living crisis, according to official data.

The Consumer Prices Index hit 11.1 percent in October, reaching the highest level since 1981, the Office for National Statistics (ONS) said in a statement on Wednesday.

USD

The dollar fell during early trading as PPI inflation came in lower than expected. The PPI figure came in at 0.2%, lower than the 0.4% the market had forecast. The Producer Price Index measures the inflation facing domestic producers of goods and services and is therefore considered to be another measure for consumer-facing inflation (CPI).

The dollar losen further and reversed some of the gains it has seen recently after this data release as it is likely that this will result in the Federal Reserve slowing down its pace of interest rate hikes.

Nevertheless the greenback did benefit from safe-haven flow later in the trading session as geopolitical tensions flared because of a missile landed in Poland and killing civilians, the missile launch was initially attributed to Russia. US President Biden later confirmed that the missile may not have been fired from Russia and that the investigation is ongoing.

Currency markets remain very volatile after the event and we could see further safe-haven flow benefitting the dollar as the week goes by.

GBP

The british pound edged higher on Tuesday against the dollar but fell against the euro. Weak US data caused cable to rise and saw Sterling reach three-month highs against the dollar, but these gains were lost as the trading session went by.

On Wednesday morning, the release of UK inflation data which saw CPI beat market expectations and showed a 11.1% rise year-on-year, higher than the 10.7% the market had forecast. Furthermore the inflation reading surpassed Septembers reading of 10.1%. Core inflation which gives a better account of price increases rose to 6.5% in October, which was up by 0.1% but in line with market consensus.

As the British pound fell and could continue to do so as the market now views the UK could suffer from stagflation, a situation where inflation continues to rise but growth stalls.

Finlly, Thursday will observe the release of the UKs Autumn Budget in which the government is likely to introduce tax rises and cuts in public spending. This also is likely to be deemed as a negative for Sterling, thus we could see further volatility leading up to the event.

Key announcements

07:00 – GBP – CPI Y/Y – Actual 11.1% from previous 10.1%

07:00 – GBP – CPI Y/Y – Remained unchanged at 6.5%

13:30 – USD – Core Retail sales m/m – Forecast at 0.5% from previous 0.1%

13:30 – USD – Retail sales m/m – Forecast at 1% from previous 0.0%