Daily Alert – Wednesday 21st June 2023: UK inflation shocks the markets

Mark NugentDaily Alert, June 2023

Daily Alert – Wednesday 21st June 2023: UK inflation shocks the markets

Good morning.

UK CPI this morning has surprised the markets. Headline inflation, which is the measure at the heart of the Bank of England’s mandate, came in at 8.7% against an expectation of 8.4%. The prior number (April) was 8.7%. So, coming in above expectation and showing no improvement over the prior month.

Looking at Core Inflation, without the volatile elements of food and energy, is no better. The May number was 7.1% against an expectation of 6.8% and April’s 6.8%. So, coming in above expectation and getting worse.

The GBP initially rose on the expectation of further interest rate hikes but has now reversed as markets worry about the BoE pushing the economy into recession.

Adding to the gloom, the UK’s debt is now bigger than GDP for the first time since 1961.

It’s all eyes on the BoE tomorrow. Markets are expecting a 25 basis-point hike to 4.75% but are also expecting a peak rate of 6.0% by year end.

I will be observing the GBP. Will it continue higher, or have we reached a turning point as the BoE heaps pressure on the economy?

I’ll be back tomorrow.

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