The UK joins the list of countries seeing higher than anticipated inflation, boosting the prospect of a UK rate hike in December 2021.
UK Inflation Data November 2021
The latest monthly CPI (consumer price index) data for the UK was released early on the morning of 17th November. The data showed that inflation had risen at a rate of 4.2% over the past year, exceeding the increase of 3.9% which had been expected by analyst consensus.
This means that UK inflation is currently at its highest level seen in 10 years. Especially sharp price rises were seen in gas (28%) and electricity (19%). Clearly the energy sector is seeing rocketing prices.
Impact on Bank of England Rate Outlook
Clearly, this inflation increase above expectations has increased the probability that the Bank of England will hike rates at its forthcoming meeting next month in December. Some analysts see this as a near certainty, as the Bank was already very close to making the first British rate hike since at its previous policy meeting. Others believe there is still some doubt, but the feeling is that a hike next month is more likely than not to happen.
Impact on British Pound and British Stock Market
By the end of the day’s trading, the British pound had risen against all other major currencies, although not by very much. The GBP/USD currency pair looked the most likely to see a technical change triggered by the data, as the first overhead key resistance level at $1.3473 has continued to hold but looks vulnerable to a bullish breakout. However, it is notable that this has not happened yet as we approach the end of the London session at the time of writing. The British pound had been surprisingly firm against the strong US dollar over the course of this week, and this was possibly caused by a sense in the market that the inflation release would come in high. The inflation data tends to boost the pound in this context as it makes a rate hike more likely.
The British pound reached its highest rate against the euro, its primary counterparty currency in the Forex market, seen since February 2020.
The benchmark British stock market index, the FTSE 100, fell over the course of the day following the announcement, but the decline was very minor and nothing out of the ordinary.
What Does This Mean for Traders?
Wednesday’s CPI data release may have given a fundamental boost to the British pound in the shape of an anticipated rate hike in December. Traders may wish to buy a bullish breakout in the GBP/USD currency pair if the price gets established later above the resistance level at $1.3473. Above the round number at $1.3500 would be even better.