- Howard Archer, an economist at IHS Global Insight
It seems that we can forget about the penetration of the 1.70-mark any time soon. Following last week's Mark Carney's hawkish comments, investors reinforced their bets the cable will extend its rally. Nevertheless, Tuesday's inflation report eased some of the pressure on the central bank, as inflation at the lowest level in four years provides scope to keep interest rates at record-low for a longer period.
The cost of living in the U.K. hit a four-and-a-half year low in May, as food and transport prices fell sharply. On a yearly basis, the headline measure of inflation picked up only 1.5%, the lowest since September 2009, when the indicator stood at 1.1%. Analysts were expecting a 1.7% rise, just slightly below 1.8% a month earlier. The core measure, which strips out the most volatile prices, also rose 1.6%. On a monthly basis, the CPI even fell 0.1%. This is the sixth straight month the inflation remains below the official target of 2%. The main downside pressure came from falling prices of transport, notably air fares.
The latest figures buy time for Mark Carney, as economy is accelerating, adding more pressure on the BoE to end five years of emergency stimulus. A recent move to 1.70 was a result of investors actions, who were pricing in a January interest-rate increase.
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