London
The pound extended losses and fell to its lowest in a month versus the dollar after data showed inflation was weaker than forecast, reducing expectations of a rate increase by the Bank of England.
Sterling dropped for a second day and was lower against all but one of its major peers after consumer prices rose 2.6 per cent in July from a year earlier, compared with the median economist forecast for a reading of 2.7 per cent. Core inflation — which excludes volatile food and energy prices — was unchanged at 2.4 per cent, also below what economists predicted.
The report backs the case of the majority of BOE officials who argue that they should wait before raising interest rates from a record low because the economy is not strong enough to absorb tighter policy, even as inflation breaches their 2 per cent target. While two of the eight Monetary Policy Committee members backed higher borrowing costs at their latest meeting earlier this month, BoE Governor Mark Carney said the uncertainty from Brexit supported maintaining stimulus.
“The knee-jerk reaction was to sell the pound on the back of softer UK inflation report,” said Lee Hardman, a strategist at MUFG in London. “The basic thinking being that there is a reduced immediate need for BoE to raise rates. Although if inflation is peaking sooner and lower than expected, it is also supportive for the UK economy.”
UK government bonds earlier dropped as North Korean tensions faded, reducing demand for haven assets.
