The latest data from the Office for National Statistics in the UK today revealed that inflation soared in the UK over August. Contrary to the readings seen out of the US over the same month, UK inflation was seen jumping firmly on both headline and core readings, beating expectations and sharpening the focus on BOE tightening expectations.

Record Jump

Headline inflation rose to 3.2% on the month, from the prior month’s 2%, beating expectations of an increase to 2.9%. With the increase outpacing what was already a strident forecast, there is no debating the upward pressure on prices in the UK currently. Similarly, core inflation was seen rising to 3.1% from the prior month’s 1.8% and again was above the 2.9% the market was looking for.

"Eat-Out-To-Help-Out" Impact

This latest set of data reflects the largest monthly increase in inflation since the ONS began collecting data in 1997. However, the ONS points out in its report that the sharp uptick is a result of the “eat-out-to-help-out” scheme put in place last August by chancellor Rishi Sunak which offered discounted meals out during the week.

Looking further at the data, however, the uptick has also been fuelled by an increase in supermarket prices, petrol prices as well as other items such as computer games and CDs and used cars. Additionally, the ONS reported that soft-drink prices rose by 1.1% on the month as a result of supply chain shortages and shortage of lorry drivers. At this level, soft drinks saw their biggest monthly increase since 2008.

Will BOE Shift Their View?

The question now is whether the BOE will be forced to adjust its inflation outlook given that the latest projections see inflation peaking at 4% by year end. If the supply chain disruptions and lorry driver shortages continue, inflation could hit 4% as early as this month, which would put a great deal of pressure on the BOE to address the situation.

Technical Views

GBPUSD

GBPUSD remains caught in a very tricky technical area between the break of the bearish trend line from YTD highs and the retest of the broken bullish trend line. Indicators are mostly flat here and likely to remain so until we see this current phase resolve. To the topside, 1.3997 is the key region to break while to the downside, 1.3570 is the main level to note.