Forex

British pound edges higher Monday, rate hike expectations get boost from ONS

The British pound moved higher in Monday trading, buoyed by a boost to expectations of a Bank of England (BOE) rate increase, following an official inflation-related data revision.

Earlier Monday the Office for National Statistics (ONS) issued a correction to an element of its employment cost index published Friday.

After stating in the data release last week that unit labour costs, or the cost of production output to employers, rose 1.6%, it was found the increase was significantly higher, at 2.4% in the second quarter of 2017.

This revision shows that broader inflationary pressures in the UK are even higher than previously estimated. A higher rate of price and costs growth adds more pressure on the BOE to raise interest rates, even though the UK economy isn’t expanding as strongly as other economies.

BOE members have separately stated that the case for an interest hike is likely growing, as there are increasing signs that inflationary pressures continue to build across the UK.

Expectations are also growing that the UK’s central bank will raise the benchmark UK interest rate from the current record low rate of 0.25%. If it does, it will be the first BOE rate increase in over a decade.

Other support for a rate hike comes as the cost of living as measured by the consumer inflation prices index, rose 2.9% on the year in August. That was an equal four-year high and up from a 2.6% rise in July.

While the BOE monitors all aspects of the UK economy and financial sectors, its remit is to target inflation and ensure it remains balanced at around 2%. If inflation rises above 3% or falls below 1% the central bank must write a letter of explanation to the UK Treasury.

UK September CPI data will be published by the ONS on October 19.

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