2. 00 | Biography | Joshua Raymond Joshua Raymond , Market Strategist at City Index. Providing regular market views and commentary to a number of media channels including Bloomberg, CNBC, Sky News and of course City Index's clients.
3. 01 | Market Analysis UK inflation hit a new two-and-a-half year high of 4.5% in April , whilst core prices rose at a record pace, hitting their highest levels since records began in January 1997. City Index Market Strategist Joshua Raymond analyses the reasons behind this increase and its likely impact on the UK economy. Most of the increase is weighted in big increases in alcohol and transport. Alcohol and tobacco rices rose on the month nearly 5% and annually reached 8.9%, giving the component its highest annual inflation in prices since record began also.
4. 02 | Market Analysis So what does this mean? In truth, there is little in these numbers that were not already hinted towards in the recent quarterly bank of England inflation report. That report indicated the UK central banks belief that inflation would hit 5% before the end of the year. Given the current trajectory of UK inflation, which has risen from 1.1% in 2009 to now 4.5% last month, it’s now feasible that it could well get to the 5% mark much sooner than the end of the year. That said, there is expected to be a big drop in inflation early next year when the VAT hike has been fully digested by the calculations and the MPC believe that inflation will ease to their 2% target in 2013.
5. 03 | Market Analysis UK Annual Inflation with 30 day moving average
6. 04 | Market Analysis The real question is what does this mean for interest rate projections? Well not much from the outset. It is going to be interesting to see how much inflation rises over the summer months. April’s increase of 4.5% annually was largely driven by alcohol, tobacco and travel over the Easter period. Should inflation hit and rally past the 5% mark over the summer, it could send alarm bells ringing within the MPC that a rate hike may be warranted to curb its excessive escalation before the current market consensus of a hike to come at end of the year. Having said that, the language used in Mervyn King’s now customary letter to the Chancellor of the Exchequer, George Osbourne, appeared to quash that potential by stating, “The MPC judges that attempting to bring inflation to the target quickly risks generating undesirable volatility in output.” Indeed when aligning today’s figures to the first formal and somewhat ‘dovish’ words from new committee member Ben Broadbent, who replaced long time hawk Andrew Sentence, it paints a picture that one vote in the committee has potentially changed sides from a hike to leaving rates unchanged in the next vote. So in truth, today’s inflation figure, whilst rising more than expected, may actually have changed very little.
7. 05 | Market Analysis At City Index, you can spread bet or trade CFDs on a range of UK and US interest rates, including Euribor, Eurodollar and Short Sterling. This means that if you feel that UK interest rates are set to rise, therefore adding pressure on sterling, you can take a position on short sterling. Conversely, if you feel that interest rates are expected to remain unchanged, you can take a long position on short sterling. Our spreads for short sterling start from just 0.02 points.
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