Pound jumps after hot UK inflation ‘cements’ quarter-point hike

The rise in consumer prices comes ahead of the Bank of England policy decision on Thursday.

The pound rose as traders firmed up bets on a quarter-point hike by the Bank of England on Thursday after inflation unexpectedly accelerated.

UK currency rose as much as 0.4% after data showed inflation advanced to 10.4% in February, surpassing all estimates in a Bloomberg survey. Core inflation reached to 6.2% from a year ago, well above the median forecast of 5.7%.

The rise in consumer prices comes ahead of the Bank of England policy decision on Thursday.

Prior to the data, concerns over the health of the banking sector and tightening financial conditions had cast doubt over whether the central bank would hike at all, with traders pricing in just a 60% chance of a 25-basis-point move at Tuesday’s close.

“This cements the call for another 25-basis-point hike at this week’s meeting, especially since banking worries seem to be waning,” said Antoine Bouvet, a strategist at ING Groep NV. “This is an ugly report, and especially disappointing after the false hope given by the drop in core inflation in the January report.”

- Bloomberg