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What next for GBP as UK inflation rises further?

Household budgets are being tested again with another uptick in inflation, this time to 9.1% year-on-year.

(Video Transcript)

Inflation continues to rise

Inflation data out today comes at a very difficult time for the economy and for us consumers as we continue to feel the pressures of upward prices that we've been seeing, with tube strikes recently really outlining just how much pain consumers are in.

Those strikes, partly to do with pay, wanting to keep up with inflation. And we've just been hearing as well that teachers are likely to strike possibly as a result of a ballot later on this year. And postal workers could also come out because of the failure of government to be able to award them more money to be able to keep track of inflation.

CPI, PPI, RPI

Let's take a look at the consumer price (CPI), producer price (PPI) and retail price (RPI) inflation data out this morning.

CPI is the benchmark. It's risen to a new 40-year high of 9.1% in May, according to these figures out today. This represents a small uptick of the 9% figure the previous month, driven upwards by the unprecedented rise in energy bills.

Economists are expecting the rate to look between the 9% to 10% range in the coming months before leaping again in October when the next adjustment to the cap on energy prices is implemented.

The Bank of England (BoE) last week moved up its target for a fifth successive time from ten to 11% by year-end for consumer price inflation.

GBP/USD

Let's take a look at what damage this has done to sterling. And I think really this downward picture that we've got here for sterling against the US dollar is really all about the problems that the economy is facing and the potential for more strikes as well.

Now today in these one-day candles, you can see we have been a lot lower than we were - at one point today we reached 12161. But we've since seen buying back into this now. Long-term, I guess at this price target of 1,1934 is expected to be broken and then potentially on the way down to these Covid lows that we had back on the 18th March 2020. All the way down there at 11451.

I'm not suggesting it's necessarily going to get there in its entirety, but certainly the direction of travel can quite clearly be seen for sterling against the US dollar.

Same sort of thing, but by a slightly less extreme degree, we've got sterling down today against the euro and we've got this channel that we're seeing with the recent highs all the way up there at the 12190 level.

But this area of support down here just at the low point we saw just a week or so ago down at 11 466 is going to be a price target I'd have thought with a potential to break there. And then on the way down to this move up that we saw at the beginning of 2021.

So pressure around sterling as a result of this inflation data and threats of strike action.


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