United Kingdom consumer inflation remains at 2.6% in July

Sterling slipped to its weakest level versus the euro in 10 months on Friday. Stock image

The pound fell 0.13 percent against the euro to 91.02 cents, its lowest level since October 2016, on growing concerns that a struggling economy would force the central bank to stick to a dovish policy stance in the coming months. He expects wage growth to remain at 2% for the rest of the year.

Consumer price inflation was stable at 2.6% in July, keeping it below May's peak of 2.9%.

Underlying prices also declined marginally on the month with the year-on-year inflation rate unchanged at 2.4% compared with expectations of a small increase to 2.5%.

The data calendar is calm apart from United Kingdom inflation and U.S. retail sales.

If any of the above data come in below expectation we would expect the Pound to remain under pressure.

"We believe it is highly unlikely that the BoE will raise interest rates in 2017, with growth likely to remain lacklustre over the second half and with inflation looking close to peaking and likely to fall back appreciably in 2018".

Two figures will be key: Wages and employment. May's authority has been undermined after the election, and the Prime Minister is unlikely to be strong enough to force the issue one way or another.'So long as Brexit-based uncertainty continues to hang over the United Kingdom economy the GBP USD exchange rate could struggle to find any particular upside momentum.

"We have pencilled in one interest rate hike to 0.5% late on in 2018, but this is far from certain".

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The sharp drop in the value of sterling since the referendum has driven up the cost of imported goods, especially food imports, resulting in a sharp acceleration in price growth.

United Kingdom consumer prices declined 0.1% for July compared with market expectations of an unchanged reading for the month.

'Some unregulated fares are likely to go up much more.

Chris Williamson, chief business economist at IHS Markit, said real earnings were "likely to continue falling for some time, as inflation exceeds pay growth".

Investors were not impressed by the latest United Kingdom consumer price index data, leaving the Pound US Dollar exchange rate on a sharp slump.

"If Brexit negotiations look like leading to a transitional agreement that allows for the United Kingdom to stay within the Customs Union for 3 or more years after March 2019, the GBP will outperform expectations", he said.

Recent retail data suggested that households were scaling back on non-essential purchases in order to cope with rising grocery bills, so increasing earnings is desperately needed if spending is to continue driving the economy. This means that higher prices pile "additional pressure on to already-squeezed budgets".

Data due on Wednesday is likely to show average pay rises of around 2 percent are failing to keep up with the cost of living.

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