The UK released its monthly inflation figures this morning and they caught the markets off guard by being quite a lot higher than expected. The consensus was that we were going to see a rise but only to 1.6%, but the actual figure was 1.9%, only a shy under the Bank of England’s target rate of 2.0%. The office of National Statistics was at a loss to explain exactly what had caused this, but hinted at rising food prises and transportation costs. However it could be just a case of people in the UK spending more and coincides with a rise in retail sales in June by 0.6%.
This means that although the pound has risen strongly against the Euro and the USD over the past year, resulting in cheaper imports, the overall cost of things in the UK has risen. This will add to the cost of UK exports and could result in less demand for Sterling in the future.