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WisdomTree comments on UK inflation figures


The latest reading from the UK’s Office for National Statistics (ONS) shows that Consumer Prices Index (CPI) inflation remained at 2.3 per cent in March.
Viktor Nossek (pictured), director of research at ETF provider and sponsor WisdomTree in Europe, says: “It is no surprise UK CPI remained flat in March as neither energy prices nor sterling moved significantly over the month. Indeed, inflation has probably peaked for now.

“There are three key risks to this view. One is that the pound significantly devalues from current levels. With Brexit uncertainty already priced in, however, we would need to see a catastrophic breakdown in the EU27 trade talks for sterling to fall much further from here.

“The second is the oil price breaching USD60 a barrel. Bullishness abounded after the OPEC production deal but even after subsequent announcements on cuts from both the cartel and non-OPEC producers the oil price has barely moved. Every time the price moves higher, US shale producers raise output. Unless this constant counterbalance is disrupted, the oil price will remain broadly static.

“The third is that we see the non-energy components of UK CPI rise. However, this would require higher household consumption, and unless employment outstrips expectations and wages grow, it appears doubtful.

“It is worth remembering that CPI in the US is only just creeping up despite wages increasing in response to a stronger labour market. This is ‘good’ inflation. In the UK, we have ‘bad’ inflation, driven by a weaker pound and higher energy costs. Bigger bills will hit households’ propensity to spend. Without a major shift in either sterling or oil, higher UK inflation looks unsustainable.”

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