Inflation Jumps in April

The British Pound has been given yet a further boost today with the latest inflation data from the Office for National Statistics showing that consumer prices more than doubled in April. The headline figure was seen jumping from 0.7% over the prior month to 1.5% while the core reading, which strips out volatile components such as food and energy, also increased to 1.3% from the prior month’s 1.1% reading.

Base Effects Having an Impact

Explaining, the sharp increase, the ONS pointed out that the move was due to much higher prices seen in categories such as energy when compared with where they were a year ago at the height of the pandemic. More broadly, the rise in inflation was attributed to spending in areas such as housing and household services, clothing and footwear and transport, which were the three largest positive contributors. In terms of the areas which provided the main drag on inflation, unsurprisingly these were recreation and culture, restaurants and hotels and alcohol and tobacco.

May Inflation To Lift Further

With April marking the first significant easing of lockdown, the return of al fresco hospitality, the surge in spending over the month is a very strong indication of what to expect this month. As of Monday, the return of indoor hospitality in the UK means a huge section of the economy is now back in business. The return of indoor hospitality, as well as increased optimism around the ongoing vaccination success, means that inflation over this month is likely to rise higher still.

BOE Says Still Not Concerned By Inflation

The BOE recently upgraded its inflation forecasts for the year, now expecting inflation to top its 2% target, peaking at 2.5% this year before falling back. Ahead of the BOE’s latest meeting there were concerns that the bank might signal a hawkish shift given the ongoing rally in commodities which has seen the cost of raw materials rising sharply for producers this year. However, the BOE sat tight and this governor Bailey said that as yet, there were no signs that higher input prices were being passed onto the consumer. Looking ahead, however, Bailey said: "But I can assure you that we will be watching this extremely carefully and we will take action when we think it's appropriate to do so, no question about that."

Technical Views

GBPAUD

The breakout highlighted in yesterday’s Market Spotlight is now playing out. With both MACD and RSI supportive, while price holds above the 1.8064 level, look for 1.8316 and 1.8461 next. To the downside, any reversal lower should find support firstly into the 1.8064 level ahead of the rising trend line below.

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