The pound jumped to one-week high against the dollar and climbed against the euro on Tuesday after
Official data showed that consumer prices rose 2.4 per cent in the year to September, down from 2.5 per cent in August.
However, analysts said that this was almost entirely due to the effects of falling oil prices and that the headline figures masked inflationary pressures elsewhere in the UK economy, with a jump in retail prices likely to raise concerns at the Bank of England. The retail price index rose to an annual 3.6 per cent in September, an eight-year high.
“There is a very real danger that the 2007 wage settlements will be markedly higher, as many pay deals are still based on this inflation measure,” said Howard Archer, economist at Global Insight. “Consequently, we expect the Bank of England to enact a further 25 basis points precautionary interest rate hike in November.”
The pound rose 0.3 per cent to $1.8671 against the dollar and 0.3 per cent to £0.6713 against the euro.
Meanwhile, the euro shrugged off slightly weaker-than-expected eurozone inflation figures and a drop in the ZEW index of German business confidence to stand unchanged against the dollar at $1.2530.
Mitul Kotecha, global head of FX strategy at Calyon, said while the fall in the ZEW index was unlikely to help the euro, it would have little impact on European Central Bank policy, with the next rate rise still likely in December.
Source: Financial Times