Pound soars as inflation leaps and Fed chief Janet Yellen talks down US economy
The latest data comes against the backdrop of a buoyant jobs market and an economy growing at its fastest annual pace since 2007
Wednesday 16 July 2014
The pound surged to new six-year highs against the dollar last night as an inflation shock fuelled expectations of UK interest rate rises while a dovish Federal Reserve chair Janet Yellen warned over “false dawns” for the US economy.
A surprise rise in the Bank of England’s Consumer Prices Index benchmark from 1.5 per cent to 1.9 per cent in June – the biggest monthly increase since October 2012 – caught the City off-guard and sent sterling racing nearly a cent higher against the dollar.
Then Ms Yellen’s comments in the afternoon to the Senate Banking Committee – in which she stressed that rates would stay at rock-bottom levels for “some time” to support a recovery “not yet complete” – sent the pound as high as $1.7192 against the dollar, the highest since October 2008.
The Office for National Statistics said the sudden increase in the cost of living in the UK was partly driven by rising clothes prices, which contrasted with last year when shops responded to dismal weather with deep price cuts. Food costs also edged higher as 11 of the ONS’s 12 broad categories of goods and services registered price increases.
The inflation figures were accompanied by alarming signals from the housing market as UK average prices leapt 10.5 per cent in the year to May – with London prices up a record 20.1 per cent on last year.
Video: Chantico Global chairwoman on Janet Yellen's testimony
The Bank of England’s Governor Mark Carney stressed to MPs on the Treasury Select Committee that the timing of the first interest rate rise would be “driven by the data”, adding that the latest rise brought the cost of living into line with the Bank’s May quarterly forecasts.
But the latest data comes against the backdrop of a buoyant jobs market and an economy growing at its fastest annual pace since 2007. “Given the solid economic outlook, we see a 60 per cent chance that the Bank will begin gradually hiking rates in November this year,” said Rob Wood, the chief UK economist at Berenberg.
David Tinsley, an economist at BNP Paribas, added that the figures could disturb the increasingly fragile consensus on the Bank’s Monetary Policy Committee, with more hawkish members tempted to vote for rate rises. He said: “It’s hard not to conclude that this looks like a good, old-fashioned UK inflation shock. If it persists in coming months, it can only intensify the debate on the MPC.”
Ms Yellen’s testimony stressed signs of “significant slack” in the US jobs market and played down a recent pick-up in inflation. A dire winter threw the world’s biggest economy into reverse in the first quarter of the year as it shrank at an annual pace of 2.9 per cent. Ms Yellen warned: “The Federal Reserve does need to be quite cautious with respect to monetary policy. We have in the past seen sort of false dawns – periods in which we thought growth would speed, pick up and the labour market would improve more quickly, and later events would prove those hopes to be unfortunately over-optimistic. We are watching very carefully.”
The Fed is due to wrap up its money-printing programme in October but interest rates are expected to stay at between zero and 0.25 per cent until the middle of next year.
- 1 'Kidnapped boy may have been abused and murdered by VIP paedophile ring,' say police
- 2 Ridley Scott on Exodus, Gods and Kings casting: 'I'm not going to get it financed if my lead actor is Mohammad so-and-so from such-and-such'
- 3 Girl, 7, gets Tesco to remove 'stupid' sign suggesting superheroes are 'for boys'
- 4 This letter from a reader explains why women can’t play football
- 5 'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
Black Friday 2014: Opening times for Asda, John Lewis, GAME, PC World and Argos
Miss Honduras Maria Jose Alvarado's stylist Luis Alfredo Garcia is found stabbed to death
Dr Lam Hoe Yeoh: Voyeur doctor jailed for eight years after using network of hidden cameras to film patients, colleagues and friends on the toilet
'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
Scientists predict green energy revolution after incredible new graphene discoveries
Ukip says babies born to immigrants in the UK should be classed as migrants – which would include Nigel Farage’s own children
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Bollywood actress Veena Malik sentenced to 26 years in jail for blasphemy after appearing in mock TV wedding scene
iJobs Money & Business
£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...
£6000 - £60000 per annum + Bonus and Benefits: Ampersand Consulting LLP: UI De...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
Negotiable: h2 Recruit Ltd: A rapidly expanding, global Software/ SaaS Vendor ...