The British pound rose against the dollar after the United Kingdom inflation report. The much anticipated inflation data were released this Tuesday morning. CPI on an annual basis accelerated to 3.5 percent in March from February’s 3.4 percent. This was in line with expectations . On a month to monthly basis, the rate of inflation increased by 0.3 percent , which was lower than the previous 0.6 percent but also in line with expectations.
The annual rate is still much higher than the Bank of England’s inflation target rate which stands at 2 percent.
Sterling rose against the dollar after the CPI data and hit a session high of $1.5969 within 30 minutes of the data released at 08:30 GMT.
The general view of the markets is that the Bank of England will not be inclined to expand QE [quantitative easing] further in May but more will be revealed in the BOE monetary policy minutes of the April meeting tomorrow. While inflation is proving sticky, the components that are surprising to the upside (food, fuel and clothing) are also the very reason behind pressure on household disposable incomes.
“We feel that today’s rise in inflation is just a temporary setback in a downward trend, but given the recent better tone to some of the activity data it reduces the chances of additional Bank of England [quantitative easing] in May,” said James Knightley, economist at ING Bank.