AUD GBP Sinks as British Economy Sparks Rate Debate

AUD GBP Sinks as British Economy Sparks Rate Debate

The AUD GBP exchange rate was lower on Wednesday by around 60 pips after UK economic data restarted the debate over a 2021 interest rate hike by the BoE. The ONS reported that annual inflation had increased to 4.2% which was ahead of analysts’ expectations. The price pressures add to stronger employment figures and will increase pressure on the BoE.

The AUD GBP exchange rate was trading at 0.5380 after the latest data.

UK inflation at near-decade highs boosts sterling

The latest UK inflation figures from the ONS showed UK inflation sizzling again. The annual inflation number moved to 4.2% from 3.1% with analysts expecting 3.9%.

The move was driven by the recent rise in energy prices which pushed up the Ofgem price cap. Supply chain issues and the rebound from lockdowns have also pushed prices higher.

Despite the numbers, a Bank of England policymaker said that said that the country’s household still trust the bank to contain prices.

Catherine Mann only joined the BoE’s Monetary Policy Committee in September and told an online event that she expected higher inflation to be temporary.

“We feel confident that they believe that the Bank of England can and will – those are important ingredients right, can and will – undertake the appropriate policy response to bring inflation back to 2%,” Mann said.

The comments are laced with some hope and a desire to project confidence, but the bank has already backtracked from earlier in the year. The bank’s previous Chief Economist left after warning of 4% inflation and that was shot down by other members.

Traders will now look to the BoE’s mid-December interest rate meeting for the first UK rate hike from 0.1%. BoE Governor Andrew Bailey said on Monday that he had worried recently that markets might lose faith in the BoE. With the latest economic figures, that could see a hike in December as a signal to markets.

Australian wages at pre-virus levels but risks still exist

Wage levels are said to have returned to pre-pandemic levels but the scarring from the lockdowns is yet to be fully revealed.

With the rise in wages to 2.2 per cent over the year to September, that was a bounce from wage freezes incurred at the height of lockdowns. Prime Minster Scott Morrison has said that the coming summer will to the hot jobs market with more than 280,000 additional jobs available.

However, there are risks to that claim as migration has been shut off for almost two years. That has reduced the pool of workers that farmers, construction and hospitality rely on for their survival. Economic and business commentators have also warned that the current skills shortage is partly driven by a skills mismatch, which cannot be easily fixed.

The Reserve Bank of Australia’s Governor Philip Lowe maintained a dovish mood on Monday alongside the latest minutes from the bank’s policy meeting. That imbalance should continue to support the British pound.

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