By Tom Wilson
LONDON – Sterling climbed against the dollar on Wednesday as UK inflation rose more than expected to its highest in almost three years, putting the focus of the Bank of England’s plan to keep its huge stimulus programme in place.
Inflation jumped in June further above the BoE’s 2% target to hit 2.5%, its highest since August 2018. Higher prices for food, fuel and used cars as the economy bounced back from its lockdown slump were among the drivers.
In response, the pound gained as much as 0.3% to $1.38515, clawing back some of the ground lost on Tuesday when it fell 0.5% – its biggest one-day drop in almost a month – after the highest U.S. inflation in 13 years sent the greenback surging.
By 0726 GMT, the pound was up 0.2% at $1.3843. Against the euro, sterling gained 0.2% to 85.13 pence.
The BoE has said inflation will peak above 3% before falling back. Market analysts said a temporary spike in inflation would likely not lead to immediate tightening of policy, with the higher reading on Wednesday having limited impact on the pound.
“The currently high inflation should not necessarily point to imminent BoE tightening as CPI pressures are to calm down in 2022,” ING analysts wrote in a note.
“This means a limited positive spillover into GBP today.”