The British pound sterling rose against its major currency peers amid higher-than-expected inflation to cap off 2020 in the United Kingdom. Across the board, the cost of living was higher in December, leading to speculation that this could be the start of soaring price inflation in the aftermath of billions in fiscal and monetary stimulus and relief. But how much of an impact will this have on the pound?
According to the Office for National Statistics (ONS), the consumer price index (CPI) advanced 0.6% year-over-year in December, coming in slightly higher than the median estimate of 0.5%. Transportation, communications, and recreation and culture were the largest contributors to the higher inflation rate.
On a monthly basis, the CPI edged up 0.3%, above the market forecast of 0.2%.
Producer prices eased on an annualized rate last year. The producer price index (PPI) output slumped 0.4% year-over-year in December, better than the consensus of -0.6%. But the PPI input increased 0.2% year-over-year last month, lower than the expectation of 1%.
The retail price index climbed at an annualized rate of 1.2% in December, matching the median estimate. On a monthly basis, retail price inflation rose 0.6%.
On Tuesday, the ONS reported a dramatic surge in labor productivity in the UK, climbing 5.6% per hour in the third quarter, recovering from the second quarter’s 0.7% drop.
England has been under strict lockdown for about a month, forcing millions to stay at home and to only leave the house for “a reasonable excuse.” The purpose was to mitigate the spread of the new variant of the coronavirus. It is unclear for how long these harsh new measures will stay intact, but the economic toll will be devastating for the nation. Early reports suggest the tough measures could last until Easter.
The UK is currently reporting tens of thousands of new infections per day, raising the seven-day average to 43,257. The nation has had a death toll of more than 91,000. The UK has rolled out an ambitious vaccination program as the government reports that the nation is vaccinating 140 people per minute on average.
The entire UK bond market was in the green on Tuesday, with the benchmark 10-year bond rising 0.012% to 0.302%. The one-year note was edged up 0.001% to 0.114%, while the 30-year bond jumped 0.019% to 0.878%.
The Bank of England (BoE) chief Andrew Bailey will be delivering prepared remarks midweek. He is expected to provide an update on monetary policy and current economic conditions. Last week, the British central bank discussed the possibility of introducing subzero interest rates, and the consensus was there would be “a lot of issues with it.”
The GBP/USD currency pair advanced 0.26% to 1.3669, from an opening of 1.3634, at 13:37 GMT on Wednesday. The GPB/JPY rose 0.09% to 141.78, from an opening of 141.62.
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