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Sterling edges up after UK inflation jump

·2-min read

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Joice Alves

LONDON, Sept 15 (Reuters) - Sterling edged up on Wednesday, but was off the multiple-week high touched the previous day, after data showed British inflation hit a more than nine-year high last month, fuelling expectations the Bank of England could act sooner to hike rates.

Consumer prices in Britain rose by 3.2% in annual terms last month, the biggest monthly jump in the annual rate in at least 24 years, largely due to a one-off boost reflecting the "Eat Out to Help Out" scheme that pushed down restaurant meal prices last year.

The BoE expects inflation to rise sharply this year and hit a peak of 4%. The strong reading for inflation could reinforce expectations that the BoE is set to tighten monetary policy quicker than the European Central Bank or the U.S. Federal Reserve.

"With inflation running hot and wages on the rise, the Bank looks quite likely to be one of the first major central banks to hike rates next year," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

A poll from Reuters found out that investors believed the BoE will raise borrowing costs by the end of 2022.

But the latest numbers brought forward these expectations to mid-2022, said Stuart Cole, head macroeconomist at Equiti Capital. This "explains the support sterling is seeing at the moment".

Even taking into account the "Eat Out to Help Out" scheme, "underlying pressures remain strong", with inflation considerably above the BoE’s 2% mandated target, Cole said.

Sterling rose 0.2% versus the dollar at $1.3831 by 0825, but it was off the 5-week high of $1.39.13 against the dollar touched on Tuesday.

Versus the euro, sterling rose 0.1% to 85.42 pence, off the 3-week high of the previous session.

Sterling has gained support this week by labour market data showing the total number of payrolled employees in Britain has climbed to pre-pandemic levels.

It extended its rise after the dollar dipped as data showed on Tuesday underlying U.S. consumer prices increased at their slowest pace in six months in August. (Reporting by Joice Alves; Editing by Andrew Cawthorne)

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