Sterling retreated from its highest level in a month against the euro on Tuesday, after UK inflation data came in below forecast, adding to a handful of subdued economic numbers over the past couple of weeks. The figures still showed the fastest rise in consumer prices since June 2014, driven by higher fuel prices, but the headline 1.8 percent year-on-year reading was short of the 1.9 percent increase expected by economists.
It was seen as doing little to push the Bank of England towards an early rise in Britain's record low interest rates and knocked the pound which on Monday had notched its first unbroken six-day run of gains against the euro since early September.
Sterling fell 0.7 percent against the euro to 85.18 pence, back to $1.2458 versus the dollar and saw broadly similar moves against the Japanese yen and Swiss franc. "The hawkish calls (for the Bank of England to raise interest rates) had been steadily growing in the background and as soon as the data hit there was a bit of a reality check for sterling," ING FX strategist Viraj Patel said.
"Focus now switches to the wages data tomorrow and if they don't pick up as much as inflation, food prices etc... Then the Bank of England will have to look through the inflation (rise) and focus on the slowdown in growth." The political rumblings from Britain's looming divorce from the European Union also continued which kept UK government bonds under pressure.
Speaking in Sweden, British Brexit minister David Davis said Britain would not, as some media reports have suggested in recent weeks, launch the formal EU exit procedure before the bloc's leaders holds a summit on March 9-10. Davis stuck to the previously flagged end of March timeframe, meaning it could clash awkwardly with another EU summit on March 25 being held to celebrate the bloc's 60th anniversary.
"The 9th or 10th is not a date I recognise in terms of our timetable. What we have said is by the end of March, sometime during March," Davis said alongside Ann Linde, Sweden's minister for EU Affairs and Trade. The inflation data meanwhile added to an increasingly complex outlook for Britain's economy, which up until now has been fending off economists worries surrounding Brexit.
Below the headline numbers, other data showed the prices paid by factories for fuel and materials rose at an annual rate of 20.5 percent, the biggest leap since 2008 and underscoring the pressures currently building on UK firms. The cost of crude oil alone was more than 88 percent higher than a year earlier - the biggest increase since June 2000 - overwhelmingly driven by global rebound in prices. The 17 percent post-Brexit vote slump in the pound compounds that.
"The latest rise in CPI was mainly due to rising petrol and diesel prices, along with a significant slowdown in the fall in food prices," ONS statistician Mike Prestwood said.
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