Economy

United Kingdom firms plan biggest pay rises since 2008, boosting rate hike case

United Kingdom firms plan biggest pay rises since 2008, boosting rate hike case

Sterling rose 0.3 per cent against the dollar to 1.38 United States dollars following the news that the rate of Consumer Prices Index inflation held steady at 3.0 per cent in January.

The recent market correction started in the United States, largely driven by its own concerns over rising wages, and a number higher than the 0.3% month-on-month forecast could be taken negatively by the market.

The market is down roughly 7 percent overall from its January 26 high.

ONS senior statistician James Tucker said: "Headline inflation was unchanged with petrol prices rising by less than this time past year".

In terms of the United Kingdom nations, average prices in England rose 5.0 per cent to a typical £244,000; Wales saw an increase of 5.4 per cent to stand at £154,000; in Northern Ireland prices grew 4.3 per cent to £130,000.

Sterling rose 0.5% against the dollar to 1.39 USA dollars following the news.

On a month-on-month basis, the core sub-index increased by 0.68 per cent in January 2018 was higher from 0.51 per cent recorded in December.

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USA stock futures fell more than 1 percent on Wednesday after data showed US consumer prices rose more than expected in January, with core inflation posting its biggest gain in a year. Inflation was forecast to slow to 2.9 percent.

Month-on-month, output prices edged up 0.1 percent and input prices climbed 0.7 percent.

For holders of I Bonds, the January number is the fourth of six monthly reports - from October 2017 to March 2018 - that will determine the I Bond's new variable rate, to be reset May 1. "Inflation expectations have been rising, and investors are anxious about an upside surprise". Meanwhile, soft retail sales are probably the result of two factors - one, adverse weather shuttered sales at the start of the month (e.g. motor vehicles -1.3%); two, January may be a "pause to refresh" after a gangbusters 4Q.

Food price inflation also appeared to be slowing, having risen strongly since mid-2016, edging down 0.1% on the month amid larger falls in the cost of meat, oils, milk, cheese and eggs.

Higher inflation has been fuelled in part by the Brexit-induced collapse of the pound, which has made imports more expensive and driven up the cost of living, adding pressure on households squeezed by paltry wage growth.

The Bank of England strengthened its economic forecast Thursday and announced it will likely have to raise interest rates both earlier and higher than it expected in November. Even so, equities have recovered some ground, advancing for three trading sessions in a row through Tuesday.

Chris Williamson, chief business economist at IHS Markit, said inflation is likely to remain "stubbornly high for some time to come", but warned that an interest rate hike should not be taken for granted. The market shed more than $1 trillion in market capitalization in the days of trading this month as investors, for the first time in almost a decade, believe that central banks around the world will pull back on their recession-era easy money policies and raise interest rates to ensure that rapidly growing economies don't run too hot.


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