EUR GBP Lower with Higher UK Inflation Reading

The EUR GBP exchange rate was lower by 0.11% on Wednesday after the latest UK inflation figures marked a sharp rise in August. The reading of 3.2% surged higher from analysts’ expectations of a 2.9% increase and will raise the pressure on the Bank of England to act on interest rates and stimulus down the line.

The EUR to GBP rate is now trading at the 0.8545 level with European inflation ahead on Friday.

British inflation surges again to 3.2%

The British pound was higher versus the euro after the latest UK inflation data from the Office of National Statistics (ONS) showed a headline consumer price index rise from 0.5% in July to 0.7% in August.

The latest number is an annualized gain of 3.2%, which is the highest level since 2012. Similarly, the core CPI rose from 1.9% to 3.1% with the gains being blamed on the country’s Eat Out to Help Out program last August which slashed restaurant prices by 50%

This is another reason why BoE analysts believe that the CPI will start moderating in the coming months. Meanwhile, the retail price index rose from 3.8% to 4.8% while the PPI rose from 10.4% to 11%.

Some analysts are expecting the Bank of England to be the first major central bank to hike interest rates next year.

The UK’s inflation number was added to the strong jobs market number on Tuesday as the unemployment rate fell once more to 4.6%. Contributing to the latest spike in living costs were higher prices for petrol, used cars and food, which were all 2 per cent higher from the July figures.

The euro versus the pound will now look to the European version of core inflation numbers on Friday with a prediction for inflation to jump to 1.6%. There is less immediate pressure on the ECB, despite some hawkish comments from policymakers and analysts’ expect the December ECB meeting to provide an update on stimulus.

Boris Johnson makes another cabinet reshuffle

Boris Johnson has made another cabinet reshuffle with Liz Truss appointed foreign secretary, replacing Dominic Raab who was demoted to justice secretary. Mr Raab also takes on the roles of Chancellor and deputy prime minister.

Liz Truss has been appointed foreign secretary replacing Dominic Raab who was demoted to justice secretary in the prime minister’s cabinet shuffle. Mr Raab also holds the roles of Lord Chancellor and deputy prime minister.

Michael Gove has been appointed as secretary of state for housing, communities and local government, replacing Robert Jenrick who was sacked in the afternoon. Gavin Williamson was removed from his role as education secretary, and Robert Buckland was removed from the justice secretary role.

A Downing Street source said: “The prime minister will today conduct a reshuffle to put in place a strong and united team to build back better from the pandemic.”

The latest reshuffle is arguably adding to the confusion in the ranks of the Johnson government at a key time.

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