UK Real Earnings Shrink, British Pound Falls Back

UK Real Earnings Shrink, British Pound Falls Back

The Bank of England is likely to keep its monetary policy unchanged at the first policy meeting held after Prime Minister Theresa May lost the Conservative parliamentary majority at the June 8 general election.

Sterling recovered around 0.2 percent on Monday of its nearly 3 percent slide since the first hint of United Kingdom election results on Thursday night, helped by hopes domestic politics may be inching towards a "softer" and less economically damaging Brexit.

At the beginning of the year, the rate was still negative and had been for nearly three years after new discount supermarkets put pressure on big chain stores and sparked a nationwide supermarket price war.

Against the euro, it was also 0.2 percent stronger at 88.33 pence, having hit its weakest in seven months on Monday.

"This morning's inflation data report caught the markets off guard, with UK Consumer Price Inflation climbing to its highest level in four years, up to 2.9% year on year, way ahead of consensus".

According to the UK's Office for National Statistics, which compiles the data, wages after inflation in the February-April quarter were down 0.4% year/year including bonuses and down 0.6% excluding bonuses.

The pound to dollar exchange rate rose this afternoon after data showed retail sales declined and Consumer Price Index (CPI) was slower than forecast in May.

If British shoppers buy less, buffeted as they are by rising inflation, that's bad news for Irish exporters selling their wares into the United Kingdom market.

Sterling weakened again after last week's inconclusive election result and businesses have said the election result risks paralysing the government at a time when it is meant to be negotiating a smooth exit from the EU.

'The sharp fall in the value of Sterling, and more recently a pick-up in utility costs, has pushed headline inflation to 2.9%.

"So they are all factors that factor into the equation, but once there is a bit more clarity on the government and Brexit negotiations, then we expect the pound to strengthen a little bit, but until then, there could still be a bit of volatility".

"This supports our view that the drop in the pound has fed through faster than expected, rather than by a larger amount".

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