The Pound Sterling traded at a new 4 month low against the US Dollar yesterday in the currency markets after the release of the latest UK inflation data.
The Office for National Statistics (ONS) reported that the UK's rate of inflation fell in July at a faster than expected pace thus reducing any pressure on the Bank of England (BoE) to raise UK interest rates anytime soon.
By the consumer price index (CPI) measure of inflation, prices rose by just 1.6% in the year to July 2014, sharply down from the 1.9% registered in June.
Sam Tombs at Capital Economics commented that UK inflation is now on a downward trend that could see the CPI measure ease to 1% by the end of 2014 amidst tough competition in the clothing and food retail markets.
Tombs said "The disinflationary effects of sterling's appreciation have not fed through fully to the shops yet. Sharp falls in wholesale energy prices mean that utility bills should hold broadly steady this winter. And the recent weakness of wages growth should keep a lid on price rises in the consumer services sector. So, while low inflation may not be sufficient to prevent the MPC from moving to "normalise" interest rates soon, we believe that a general environment of benign inflationary pressure will give the committee scope to raise them at an even more gradual pace than currently anticipated by the markets."
In a separate report, the ONS said that the year-on-year rate of home-price appreciation slowed in June from 10.4% to 10.2% with the average UK mix-adjusted house price standing at £265,000 in June. Not surprisingly, London leads the way with a price increase of 19.3%, nearly twice the rate as the 9.7% recorded in the South East. Excluding London and the South East, prices were 6.3% higher over the last 12 months and the average UK mix-adjusted house price at just over £201,000.
The Pound Sterling fell heavily throughout the day, losing ground against all 16 of the most actively traded currencies in the foreign exchange market to reach a 4 month low against the US Dollar.