Sterling drops, UK inflation offers little respite for rates

The pound headed for its biggest one-day drop this month on Wednesday after data showed UK inflation slowed faster than expected in June, but was still well above its target, giving the Bank of England little room to relax monetary policy.

British annual consumer price inflation fell to a lower than expected 7.9% in June, below a forecast for a decline to 8.2%.

June’s rate was a long way off last October’s 41-year high of 11.1%, but far above the BoE’s 2% target rate.

Core inflation – which excludes food, energy, alcohol and tobacco prices – dropped to 6.9%, from May’s 7.1%. This was below forecasts for a decline to 7.1%, but not far from last month’s 31-year high.

Sterling was last down 0.8% at $1.2934 and fell 0.64% against the euro to 86.69 pence.

The euro touched its highest against the pound since late May earlier in the session.

“Today’s fall in CPI inflation is a small step in the right direction for the UK economy, but high wage growth and stubborn underlying prices show there is still a long journey ahead to drag inflation back down into more stable territory,” said Jeremy Batstone-Carr, European strategist at Raymond James.

Futures on the FTSE 100 rose 0.7%, pointing to a strong start to the day for the London blue-chip index later on.

Sterling drops, UK inflation offers little respite for rates