UK Inflation Rises to 0.6%, Pound Moves up on Dollar

The UK’s Office for National Statistics (ONS) has announced that inflation in the UK rose in July up to 0.6%, a slender 0.1% increase from the figure for June, in the first inflation release since the decision to leave the European Union (EU).

Consumer Price Inflation in the UK is now at it highest level for 20 months, despite the small month on month contrast, the ONS said that inflation is still relatively low in the historic context.

The main contributors to the hike in the inflation rate arrived from rising prices for motor fuels, alcoholic beverages and accommodation services, and a smaller fall in food prices than a year ago.

These upward pressures were partially offset by falls in social housing rent, and falling prices for certain types games and toys.

Producer price inflation rose by an annual 0.3% in July, higher than some analysts forecasts that there would be no change, there was a significant difference with the results for June where factory gate prices fell by a year on year 0.2%.

Mike Prestwood, head of prices at the ONS said: “There was no obvious impact on today’s consumer prices figures following the EU referendum results, though the Producer Prices Index suggests the fall in the exchange rate is beginning to push up import prices faced by manufacturers.”

The pound has reacted positively to the inflation news, with the GBP/USD rate spiking up to £1.2975, reducing some of the losses that the pound has made on the dollar, since the reduction of interest rates to a historic low of 0.25%, and the increase in quantitative easing, which has led to many bearish bets on sterling.

Against the euro, the pound has also enjoyed a positive reaction to this morning’s figures, after to a morning nadir GMT of GBR/EUR buying $1.147, rising up to just under $1.152.

Export Falls in EU, Zew Economic Sentiment Misses Expectations

Eurostat figures have revealed that annual export figures from the euro area and the EU dipped in June by 2% and 5% respectively.

In the euro area, the volume of goods that was exported to the rest of the world reached 178.8 billion euros in June, compared to 182.5 billion euros for the same period last year, although as imports fell from the international trade partners by 5% the euro area’s year on year trade surplus increased from 25.5 billion euros to 29.2 billion.

For the whole of the EU, export levels fell to a total of 151.4 billion euros, a reduced figure from June last year where 159.8 billion euros of goods were bought, imports also declined by 4%, leaving the trade surplus at 7.7 billion euros, whereas last year trade excesses in June was higher at 9.3 billion euros.

The influential ZEW economic sentiment indicator in Germany has increased in August, with the index score gaining a significant 7.3 points, and is now standing at minus 0.5 points, it is believed from the results of the survey that the initial dismay to ‘Brexit’ has now eased.

Experts’ view of the euro areas has also improved, as the economic sentiment increased by 19.3 points to a reading of 4.6 points, the indicator for the current situation in the euro area also rose by 2.1 points for August to a minus figure of 10.3 points.

The EUR/USD rate has been encouraging in reaction to the figures for the euro, escalating to a peak of $1.127 from $1.118 this morning CET.